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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

x

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

2023

o

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                   to                   .

Commission File Number 001-31812

ANI PHARMACEUTICALS, INC.

INC.

(Exact name of registrant as specified in its charter)

Delaware

58-2301143

(State or other jurisdiction of
incorporation or organization)

(IRS Employer
Identification Number)

210 Main Street West

Baudette,, Minnesota56623

(Address of principal executive offices)

(218)

(218) 634-3500

(Registrant’s telephone number including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

Trading Symbol(s)

Name of each exchange on which registered:

Common Stock

ANIP

Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer x

Non-accelerated filer o

Smaller reporting company o

Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of August 1, 20222, 2023 there were 17,426,03420,280,798 shares of common stock and 10,864 shares of class C special stock of the registrant outstanding.



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ANI PHARMACEUTICALS, INC.

FORM 10-Q — Quarterly Report

For the Quarterly Period Ended June 30, 2022

2023

TABLE OF CONTENTS

Page

PART I —FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (unaudited)

5

Page

5

6

7

8

10

11

51

53

53

Risk Factors

53

Item 2.

54

54

54

Other Information

54

Item 6.

Exhibits

55

Signatures

56

2


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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q and certain information incorporated herein by reference contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements include, but are not limited to, statements about future operations, strategies and growth potential, the revenue potential (licensing, royalty and sales) of products we sell, development timelines, expected timeframe for submission of new drug applications, abbreviated new drug applications, or supplemental new drug applications to the U.S. Food and Drug Administration (the “FDA”), pipeline or potential markets for our products, selling and marketing strategies and associated costs to support the sales of Purified Cortrophin® Gel (Repository Corticotropin Injection USP) (“Cortrophin Gel”), impact of accounting principles, litigation expenses, liquidity and capital resources, the impact of the novel coronavirus (“COVID-19”) global pandemic on our business, and other statements that are not historical in nature, particularly those that utilize terminology such as “anticipates,” “will,” “expects,” “plans,” “potential,” “future,” “believes,” “intends,” “continue,” other words of similar meaning, derivations of such words, and the use of future dates. Such forward-looking statements are based on the reasonable beliefs of our management as well as assumptions made by and information currently available to our management. Readers should not put undue reliance on these forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified; therefore, our actual results may differ materially from those described in any forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in our periodic reports filed with the U.S. Securities and Exchange Commission (the “SEC”), including those discussed in the “Risk Factors” section in Part I, Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 2022 and the following factors:

risks that we may face with respect to importing raw materials;
delays or failure in obtaining and maintaining approvals by the FDA of the products we sell;
changes in policy or actions that may be taken by the FDA and other regulatory agencies, including drug recalls;
the ability of our manufacturing partners to meet our product demands and timelines;
our dependence on single source suppliers of ingredients due to the time and cost to validate a second source of supply;
acceptance of our products at levels that will allow us to achieve profitability;
our ability to develop, license or acquire, and commercialize new products;
the level of competition we face and the legal, regulatory and/or legislative strategies employed by our competitors to prevent or delay competition from generic alternatives to branded products;
our ability to protect our intellectual property rights;
the impact of legislative or regulatory reform on the pricing for pharmaceutical products;
the impact of any litigation to which we are, or may become, a party;
our ability, and that of our suppliers, development partners, and manufacturing partners, to comply with laws, regulations and standards that govern or affect the pharmaceutical and biotechnology industries;
our ability to maintain the services of our key executives and other personnel;
whether we experience disruptions to our operations resulting from the anticipated closure of our Oakville, Ontario manufacturing plant; and
general business and economic conditions, such as inflationary pressures, and the effects and duration of outbreaks of public health emergencies, such as COVID-19.
risks that we may face with respect to importing raw materials and delays in delivery of raw materials and other ingredients and supplies necessary for the manufacture of our products from both domestic and overseas sources due to supply chain disruptions or for any other reason;

delays or failure in obtaining and maintaining approvals by the FDA of the products we sell;
changes in policy or actions that may be taken by the FDA and other regulatory agencies, including drug recalls;
the ability of our manufacturing partners to meet our product demands and timelines;
our dependence on single source suppliers of ingredients due to the time and cost to validate a second source of supply;
acceptance of our products at levels that will allow us to achieve profitability;
our ability to develop, license or acquire, and commercialize new products;
the level of competition we face and the legal, regulatory and/or legislative strategies employed by our competitors to prevent or delay competition from generic alternatives to branded products;
our ability to protect our intellectual property rights;
the impact of legislative or regulatory reform on the pricing for pharmaceutical products;
the impact of any litigation to which we are, or may become, a party;
our ability, and that of our suppliers, development partners, and manufacturing partners, to comply with laws, regulations and standards that govern or affect the pharmaceutical and biotechnology industries;
our ability to maintain the services of our key executives and other personnel;
whether we experience disruptions to our operations resulting from the closure of our Oakville, Ontario manufacturing plant, including the transition of certain products manufactured there to our other facilities which has been completed, or have difficulties finding a buyer for the plant and property; and
general business and economic conditions, such as inflationary pressures, geopolitical conditions including, but not limited to, the conflict between Russia and the Ukraine, and the effects and duration of outbreaks of public health emergencies, such as COVID-19.
3

These factors should not be construed as exhaustive and should be read in conjunction with our other disclosures, including but not limited to our Annual Report on Form 10-K for the year ended December 31, 2021,2022, including the factors described in “Item 1A. Risk Factors.” Other risks may be described from time to time in our filings made under

3

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the securities laws, including our quarterly reports on Form 10-Q and our current reports on Form 8-K. New risks emerge from time to time. It is not possible for our management to predict all risks. The forward-looking statements contained in this document are made only as of the date of this document. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

The Company may use its investor relations website as a distribution channel of material company information. Financial and other important information regarding the Company is routinely posted on and accessible through the Company’s investor relations website. We encourage investors and others interested in our Company to review the information we post on our investor relations website in addition to filings with the SEC, press releases, public conference calls and webcasts. Information contained on the Company’s website is not included as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.

NOTE REGARDING TRADEMARKS

Apexicon®, Cortenema®, Purified Cortrophin® Gel, Cortrophin-Zinc®, Inderal® LA, Inderal® XL, InnoPran XL®, Lithobid®, Reglan®, Vancocin®, and Veregen®are registered trademarks subject to trademark protection and are owned by ANI Pharmaceuticals, Inc. and its consolidated subsidiaries. Cortrophin-ZincTM is a trademark owned by ANI Pharmaceuticals, Inc. and its consolidated subsidiaries pending registration. Atacand® and Atacand HCT® are the property of AstraZeneca AB and are licensed to ANI Pharmaceuticals, Inc. for U.S. sales of those products. Arimidex® and Casodex® are the property of AstraZeneca UK Limited and are licensed to ANI Pharmaceuticals, Inc. for U.S. sales of those products. Oxistat® is the property of Fougera Pharmaceuticals Inc. and licensed to ANI Pharmaceuticals, Inc. for U.S. sales of Oxistat® Lotion. Pandel® is property of Taisho Pharmaceutical Co, Ltd. and licensed to ANI Pharmaceuticals for U.S. sales of Pandel® creme.

4


Part I — FINANCIAL INFORMATION

Item 1.    Condensed Consolidated Financial Statements

(unaudited)

5


ANI PHARMACEUTICALS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(unaudited)

    

June 30, 

    

December 31, 

2022

2021

Assets

Current Assets

 

  

 

  

Cash and cash equivalents

$

63,385

$

100,300

Accounts receivable, net of $150,428 and $105,260 of adjustments for chargebacks and other allowances at June 30, 2022 and December 31, 2021, respectively

 

150,410

 

128,526

Inventories, net

 

92,545

 

81,693

Prepaid income taxes

 

2,013

 

3,667

Assets held for sale

8,020

Prepaid expenses and other current assets

 

6,026

 

7,589

Total Current Assets

 

322,399

 

321,775

Non-current Assets

Property and equipment

 

71,042

 

75,627

Accumulated depreciation

(27,271)

(22,956)

Property and equipment, net

43,771

52,671

Restricted cash

 

5,001

 

5,001

Deferred tax assets, net of deferred tax liabilities and valuation allowance

 

76,587

 

67,936

Intangible assets, net

 

269,593

 

294,122

Goodwill

 

28,221

 

27,888

Derivatives and other non-current assets

 

5,762

 

2,205

Total Assets

$

751,334

$

771,598

Liabilities, Mezzanine Equity, and Stockholders’ Equity

 

  

 

  

Current Liabilities

 

  

 

  

Current debt, net of deferred financing costs

$

850

$

850

Accounts payable

 

27,641

 

22,967

Accrued royalties

 

6,295

 

6,225

Accrued compensation and related expenses

 

5,682

 

8,522

Accrued government rebates

 

9,440

 

5,492

Returned goods reserve

 

34,899

 

35,831

Accrued expenses and other

 

11,505

 

7,650

Total Current Liabilities

 

96,312

 

87,537

Non-current Liabilities

 

  

 

  

Non-current debt, net of deferred financing costs and current component

 

286,095

 

286,520

Non-current contingent consideration

 

30,958

 

31,000

Derivatives and other non-current liabilities

 

1,011

 

7,801

Total Liabilities

$

414,376

$

412,858

Commitments and Contingencies (Note 13)

 

  

 

  

Mezzanine Equity

 

  

 

  

Convertible Preferred Stock, Series A, $0.0001 par value, 1,666,667 shares authorized; 25,000 shares issued and outstanding at June 30, 2022 and December 31, 2021

 

24,850

 

24,850

Stockholders’ Equity

 

  

 

  

Common Stock, $0.0001 par value, 33,333,334 shares authorized; 17,566,363 shares issued and 17,427,252 outstanding at June 30, 2022; 16,912,401 shares issued and 16,829,739 shares outstanding at December 31, 2021

 

1

 

1

Class C Special Stock, $0.0001 par value, 781,281 shares authorized; 10,864 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

 

 

Preferred Stock, $0.0001 par value, 1,666,667 shares authorized; 0 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

 

 

Treasury stock, 139,112 shares of common stock, at cost, at June 30, 2022 and 82,662 shares of common stock, at cost, at December 31, 2021

 

(4,736)

 

(3,135)

Additional paid-in capital

 

395,043

 

387,844

Accumulated deficit

 

(83,630)

 

(47,765)

Accumulated other comprehensive income/(loss), net of tax

 

5,430

 

(3,055)

Total Stockholders’ Equity

 

312,108

 

333,890

Total Liabilities, Mezzanine Equity, and Stockholders’ Equity

$

751,334

$

771,598

June 30,
2023
December 31,
2022
Assets
Current Assets
Cash and cash equivalents$161,707 $48,228 
Current restricted cash— 5,006 
Accounts receivable, net of $89,427 and $161,052 of adjustments for chargebacks and other allowances at June 30, 2023 and December 31, 2022, respectively172,925 165,438 
Inventories104,323 105,355 
Prepaid income taxes4,088 3,827 
Assets held for sale8,020 8,020 
Prepaid expenses and other current assets8,248 8,387 
Total Current Assets459,311 344,261 
Non-current Assets
Property and equipment, net44,371 43,246 
Deferred tax assets, net of deferred tax liabilities and valuation allowance81,500 81,363 
Intangible assets, net230,299 251,635 
Goodwill28,221 28,221 
Derivatives and other non-current assets15,639 11,361 
Total Assets$859,341 $760,087 
Liabilities, Mezzanine Equity, and Stockholders’ Equity
Current Liabilities
Current debt, net of deferred financing costs$850 $850 
Accounts payable28,505 29,305 
Accrued royalties9,885 9,307 
Accrued compensation and related expenses11,493 10,312 
Accrued government rebates11,971 10,872 
Returned goods reserve29,798 33,399 
Current contingent consideration25,025 — 
Accrued expenses and other5,338 5,394 
Total Current Liabilities122,865 99,439 
Non-current Liabilities
Non-current debt, net of deferred financing costs and current component285,244 285,669 
Non-current contingent consideration12,029 35,058 
Other non-current liabilities4,731 1,381 
Total Liabilities$424,869 $421,547 
Commitments and Contingencies (Note 12)
Mezzanine Equity
Convertible Preferred Stock, Series A, $0.0001 par value, 1,666,667 shares authorized; 25,000 shares issued and outstanding at June 30, 2023 and December 31, 202224,850 24,850 
Stockholders’ Equity
Common Stock, $0.0001 par value, 33,333,334 shares authorized; 20,535,782 shares issued and 20,287,425 outstanding at June 30, 2023; 17,643,497 shares issued and 17,494,466 shares outstanding at December 31, 2022
Class C Special Stock, $0.0001 par value, 781,281 shares authorized; 10,864 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively— — 
Preferred Stock, $0.0001 par value, 1,666,667 shares authorized; 0 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively— — 
Treasury stock, 248,357 shares of common stock, at cost, at June 30, 2023 and 149,031 shares of common stock, at cost, at December 31, 2022(9,180)(5,094)
Additional paid-in capital495,488 403,901 
Accumulated deficit(90,414)(97,286)
Accumulated other comprehensive income, net of tax13,726 12,168 
Total Stockholders’ Equity409,622 313,690 
Total Liabilities, Mezzanine Equity, and Stockholders’ Equity$859,341 $760,087 
The accompanying notes are an integral part of these condensed consolidated financial statements.

5

6

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ANI PHARMACEUTICALS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2022

    

2021

    

2022

    

2021

    

Net Revenues

$

73,855

$

48,625

$

138,332

$

103,146

Operating Expenses

 

  

 

  

 

  

 

  

Cost of sales (excluding depreciation and amortization)

 

35,294

 

22,314

 

69,565

 

42,299

Research and development

 

4,165

 

2,805

 

9,439

 

5,773

Selling, general, and administrative

 

31,958

 

18,820

 

60,775

 

36,407

Depreciation and amortization

 

13,764

 

11,324

 

28,321

 

22,222

Contingent consideration fair value adjustment

(1,095)

(342)

0

Legal settlement expense

8,400

0

8,400

Purified Cortrophin Gel pre-launch charges

515

0

553

Restructuring activities

2,570

2,570

0

Intangible asset impairment charge

 

112

 

 

112

 

0

Total Operating Expenses

 

86,768

 

64,178

 

170,440

 

115,654

Operating Loss

 

(12,913)

 

(15,553)

 

(32,108)

 

(12,508)

Other Expense, net

 

  

 

  

 

  

 

  

Interest expense, net

 

(6,669)

 

(2,531)

 

(13,282)

 

(4,985)

Other income/(expense), net

 

764

 

(67)

 

675

 

(582)

Loss Before Benefit for Income Taxes

 

(18,818)

 

(18,151)

 

(44,715)

 

(18,075)

Benefit for income taxes

 

3,895

 

4,045

 

9,662

 

4,055

Net Loss

$

(14,923)

$

(14,106)

$

(35,053)

$

(14,020)

Dividends on Series A Convertible Preferred Stock

(407)

(812)

0

Net Loss Available to Common Shareholders

$

(15,330)

$

(14,106)

$

(35,865)

$

(14,020)

Basic and Diluted Loss Per Share:

 

  

 

  

 

  

 

  

Basic Loss Per Share

$

(0.94)

$

(1.17)

$

(2.21)

$

(1.16)

Diluted Loss Per Share

$

(0.94)

$

(1.17)

$

(2.21)

$

(1.16)

Basic Weighted-Average Shares Outstanding

 

16,272

 

12,085

 

16,205

 

12,045

Diluted Weighted-Average Shares Outstanding

 

16,272

 

12,085

 

16,205

 

12,045

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Net Revenues$116,547 $73,855 $223,333 $138,332 
Operating Expenses
Cost of sales (excluding depreciation and amortization)42,284 35,294 79,992 69,565 
Research and development7,374 4,165 13,298 9,439 
Selling, general, and administrative38,760 31,958 75,228 60,775 
Depreciation and amortization14,690 13,764 29,390 28,321 
Contingent consideration fair value adjustment1,035 (1,095)1,996 (342)
Restructuring activities2,570 1,132 2,570 
Intangible asset impairment charge— 112 — 112 
Total Operating Expenses104,145 86,768 201,036 170,440 
Operating Income (Loss)12,402 (12,913)22,297 (32,108)
Other Expense, net  
Interest expense, net(7,100)(6,669)(14,796)(13,282)
Other (expense) income, net(53)764 (87)675 
Income (Loss) Before Income Tax Benefit5,249 (18,818)7,414 (44,715)
Income tax benefit996 3,895 270 9,662 
Net Income (Loss)$6,245 $(14,923)$7,684 $(35,053)
Dividends on Series A Convertible Preferred Stock(407)(407)(813)(812)
Net Income (Loss) Available to Common Shareholders$5,838 $(15,330)$6,871 $(35,865)
Basic and Diluted Income (Loss) Per Share:
Basic Income (Loss) Per Share$0.30 $(0.94)$0.36 $(2.21)
Diluted Income (Loss) Per Share$0.29 $(0.94)$0.36 $(2.21)
Basic Weighted-Average Shares Outstanding17,68816,27217,04416,205
Diluted Weighted-Average Shares Outstanding17,85516,27217,17716,205
The accompanying notes are an integral part of these condensed consolidated financial statements.

6

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ANI PHARMACEUTICALS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income/Income (Loss)

(in thousands)

(unaudited)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2022

    

2021

    

2022

    

2021

    

Net loss

$

(14,923)

$

(14,106)

$

(35,053)

$

(14,020)

Other comprehensive income/(loss), net of tax:

 

  

 

  

 

  

 

  

Gains/(losses) on interest rate swap, net of tax

 

2,718

 

(401)

 

8,485

 

6,004

Total other comprehensive income/(loss), net of tax

 

2,718

 

(401)

 

8,485

 

6,004

Total comprehensive loss, net of tax

$

(12,205)

$

(14,507)

$

(26,568)

$

(8,016)

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Net Income (Loss)$6,245 $(14,923)$7,684 $(35,053)
Other comprehensive (loss) income, net of tax:  
Foreign currency translation adjustment(17)— 90 — 
Gain on interest rate swap2,612 2,718 1,469 8,485 
Total other comprehensive income, net of tax2,595 2,718 1,559 8,485 
Total comprehensive income (loss), net of tax$8,840 $(12,205)$9,243 $(26,568)
The accompanying notes are an integral part of these condensed consolidated financial statements.

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ANI PHARMACEUTICALS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Mezzanine Equity and Stockholders’ Equity

For the Three Months Ended June 30, 20222023 and 2021

2022

(in thousands)

(unaudited)

Mezzanine Equity

    

Mezzanine Equity

Total Mezzanine

Series A Convertible

Series A Convertible

    

Common

    

Common

Class C

    

Additional

    

Treasury

    

    

Accumulated

    

    

Equity and

Preferred

Preferred Stock

Stock

Stock

Special

Paid-in

Stock

Treasury

Other Comprehensive

Stockholders'

Stock

Shares

Par Value

Shares

Stock

Capital

Shares

Stock

Gain/(Loss), Net of Tax

Accumulated Deficit

Equity

Balance, March 31, 2021

$

$

1

 

12,830

$

$

216,223

 

86

$

(2,594)

$

(5,032)

$

(4,886)

$

203,712

Stock-based Compensation Expense

 

 

 

 

2,844

 

 

 

 

 

2,844

Treasury Stock Purchases for Restricted Stock Vests

 

 

 

 

 

15

 

(468)

 

 

 

(468)

Issuance of Common Shares upon Stock Option and ESPP Exercise

 

 

12

 

 

337

 

 

 

 

 

337

Issuance of Restricted Stock Awards

 

 

19

 

 

 

 

 

 

 

Restricted Stock Awards Forfeitures

(35)

(1)

(21)

(1)

Other Comprehensive Income

 

(401)

(401)

Net Loss

 

 

 

 

 

 

 

 

(14,106)

 

(14,106)

Balance, June 30, 2021

$

$

1

 

12,826

$

$

219,403

 

80

$

(3,062)

$

(5,433)

$

(18,992)

$

191,917

Balance, March 31, 2022

$

24,850

25

$

1

 

17,374

$

$

391,084

 

123

$

(4,253)

$

2,712

$

(68,300)

$

346,094

Stock-based Compensation Expense

 

3,756

 

3,756

Treasury Stock Purchases for Restricted Stock Vests

 

16

(483)

(483)

Issuance of Common Shares upon Stock Option and ESPP Exercise

 

8

203

203

Issuance of Restricted Stock Awards

0

0

 

0

208

0

0

0

0

0

0

0

Dividends on Series A Convertible Preferred Stock

(407)

(407)

Restricted Stock Awards Forfeitures

(24)

Other Comprehensive Income

 

2,718

2,718

Net Loss

 

 

 

 

 

 

(14,923)

 

(14,923)

Balance, June 30, 2022

$

24,850

25

$

1

17,566

$

$

395,043

139

$

(4,736)

$

5,430

$

(83,630)

$

336,958

Mezzanine Equity
Series A Convertible
Preferred
Stock
Mezzanine Equity
Series A Convertible
Preferred Stock
Shares
Common
Stock
Par Value
Common
Stock
Shares
Class C
Special
Stock
Additional
Paid-in
Capital
Treasury
Stock
Shares
Treasury
Stock
Accumulated Other
Comprehensive Gain,
Net of Tax
Accumulated
Deficit
Total Mezzanine
Equity and
Stockholders'
Equity
Balance, March 31, 2022$24,850 25$17,374$— $391,084 123$(4,253)$2,712 $(68,300)$346,094 
Stock-based Compensation Expense— — — 3,756 — — — 3,756 
Treasury Stock Purchases for Restricted Stock Vests— — — — 16(483)— — (483)
Issuance of Common Shares upon Stock Option and ESPP Exercise— — 8— 203 — — — 203 
Issuance of Restricted Stock Awards— — 208— — — — — — 
Restricted Stock Awards Forfeitures— — (24)— — — — — — 
Dividends on Series A Convertible Preferred Stock— — — — — — (407)(407)
Other Comprehensive Income— — — — — 2,718 — 2,718 
Net Loss— — — — — — (14,923)(14,923)
Balance, June 30, 2022$24,850 25$17,566$— $395,043 139$(4,736)$5,430 $(83,630)$336,958 
Balance, March 31, 2023$24,850 25$18,226$— $408,395 234$(8,643)$11,131 $(96,252)$339,482 
Stock-based Compensation Expense— — — 5,249 — — — 5,249 
Treasury Stock Purchases for Restricted Stock Vests— — — — 14(537)— — (537)
Issuance of Common Shares upon Stock Option and ESPP Exercise— — 40— 1,289 — — — 1,289 
Issuance of Restricted Stock Awards— — 104— — — — — — 
Restricted Stock Awards Forfeitures— — (18)— — — — — — 
Issuance of Common Stock in Public Offering— 2,184— 80,555 — — — 80,556 
Dividends on Series A Convertible Preferred Stock— — — — — — (407)(407)
Other Comprehensive Income— — — — — 2,595 — 2,595 
Net Income— — — — — — 6,245 6,245 
Balance, June 30, 2023$24,850 25$20,536$— $495,488 248$(9,180)$13,726 $(90,414)$434,472 
The accompanying notes are an integral part of these condensed consolidated financial statements.

8








9


ANI PHARMACEUTICALS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Mezzanine Equity and Stockholders’ Equity

For the Six Months Ended June 30, 20222023 and 2021

2022

(in thousands)

(unaudited)

Mezzanine Equity

    

Mezzanine Equity

    

    

Total

Series A Convertible

Series A Convertible

Common

    

Common

Class C

    

Additional

    

Treasury

    

    

Accumulated

Mezzanine Equity

Preferred

Preferred Stock

Stock

Stock

Special

Paid-in

Stock

Treasury

Other Comprehensive

and Stockholders'

Stock

Shares

Par Value

Shares

Stock

Capital

Shares

Stock

(Loss)/Gain, Net of Tax

Accumulated Deficit

Equity

Balance, December 31, 2020

$

 

$

1

 

12,430

$

$

214,354

 

76

$

(2,246)

$

(11,437)

$

(4,972)

$

195,700

Stock-based Compensation Expense

 

 

 

 

 

 

4,713

 

 

 

 

 

4,713

Treasury Stock Purchases for Restricted Stock Vests

 

 

 

 

 

 

 

25

 

(816)

 

 

 

(816)

Issuance of Common Shares upon Stock Option and ESPP Exercise

 

 

 

 

12

 

 

337

 

 

 

 

 

337

Issuance of Restricted Stock Awards

 

 

 

 

457

 

 

 

 

 

 

 

Restricted Stock Awards Forfeitures

(73)

(1)

(21)

(1)

Other comprehensive income

6,004

6,004

Net Loss

(14,020)

(14,020)

Balance, June 30, 2021

$

 

$

1

 

12,826

$

$

219,403

 

80

$

(3,062)

$

(5,433)

$

(18,992)

$

191,917

Balance, December 31, 2021

$

24,850

 

25

$

1

 

16,913

$

$

387,844

 

83

$

(3,135)

$

(3,055)

$

(47,765)

$

358,740

Stock-based Compensation Expense

 

 

 

 

 

 

6,993

 

 

 

 

 

6,993

Treasury Stock Purchases for Restricted Stock Vests

 

 

 

 

 

 

 

56

 

(1,601)

 

 

 

(1,601)

Issuance of Common Shares upon Stock Option and ESPP Exercise

 

 

 

 

8

 

 

206

 

 

 

 

 

206

Issuance of Restricted Stock Awards

 

 

669

 

 

 

 

 

 

 

Restricted Stock Awards Forfeitures

(24)

Dividends on Convertible Preferred Stock

(812)

(812)

Other comprehensive income

 

 

 

 

 

 

 

8,485

 

 

8,485

Net Loss

(35,053)

(35,053)

Balance, June 30, 2022

$

24,850

25

$

1

17,566

$

$

395,043

139

$

(4,736)

$

5,430

$

(83,630)

$

336,958

Mezzanine Equity
Series A Convertible
Preferred
Stock
Mezzanine Equity
Series A Convertible
Preferred Stock
Shares
Common
Stock
Par Value
Common
Stock
Shares
Class C
Special
Stock
Additional
Paid-in
Capital
Treasury
Stock
Shares
Treasury
Stock
Accumulated Other
Comprehensive
(Loss) Gain,
Net of Tax
Accumulated
Deficit
Total Mezzanine
Equity and
Stockholders'
Equity
Balance, December 31, 2021$24,850 25$16,913$— $387,844 83$(3,135)$(3,055)$(47,765)$358,740 
Stock-based Compensation Expense— — — 6,993 — — — 6,993 
Treasury Stock Purchases for Restricted Stock Vests— — — — 56(1,601)— — (1,601)
Issuance of Common Shares upon Stock Option and ESPP Exercise— — 8— 206 — — — 206 
Issuance of Restricted Stock Awards— — 669— — — — — — 
Restricted Stock Awards Forfeitures— — (24)— — — — — — 
Dividends on Series A Convertible Preferred Stock— — — — — — (812)(812)
Other Comprehensive Income— — — — — 8,485 — 8,485 
Net Loss— — — — — — (35,053)(35,053)
Balance, June 30, 2022$24,850 25$17,566$— $395,043 139$(4,736)$5,430 $(83,630)$336,958 
Balance, December 31, 2022$24,850 25$17,644$— $403,900 149$(5,094)$12,167 $(97,285)$338,539 
Stock-based Compensation Expense— — — 9,587 — — — 9,587 
Treasury Stock Purchases for Restricted Stock Vests— — — — 99(4,086)— — (4,086)
Issuance of Common Shares upon Stock Option and ESPP Exercise— — 45— 1,446 — — — 1,446 
Issuance of Restricted Stock Awards— — 624— — — — — — 
Issuance of Performance Stock Units— — 67— — — — — — 
Restricted Stock Awards Forfeitures— — (28)— — — — — — 
Issuance of Common Stock in Public Offering— 2,184— 80,555 — — — 80,556 
Dividends on Series A Convertible Preferred Stock— — — — — — (813)(813)
Other Comprehensive Income— — — — — 1,559 — 1,559 
Net Income— — — — — — 7,684 7,684 
Balance, June 30, 2023$24,850 25$20,536$— $495,488 248$(9,180)$13,726 $(90,414)$434,472 
The accompanying notes are an integral part of these condensed consolidated financial statements.

9

10

ANI PHARMACEUTICALS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

(unaudited

Six Months Ended June 30, 

2022

2021

Six Months Ended June 30,
20232022

Cash Flows From Operating Activities

 

  

 

  

 

Cash Flows From Operating Activities

Net loss

$

(35,053)

$

(14,020)

Adjustments to reconcile net loss to net cash and cash equivalents (used in)/provided by operating activities:

 

  

 

  

Net income (loss)Net income (loss)$7,684 $(35,053)
Adjustments to reconcile net income (loss) to net cash and cash equivalents (used in) provided by operating activities:Adjustments to reconcile net income (loss) to net cash and cash equivalents (used in) provided by operating activities:

Stock-based compensation

 

6,993

 

4,713

Stock-based compensation9,587 6,993 

Deferred taxes

 

(11,378)

 

(6,676)

Deferred taxes(137)(11,378)

Depreciation and amortization

 

28,731

 

22,222

Depreciation and amortization29,390 28,731 
Non-cash operating lease expenseNon-cash operating lease expense61 — 

Non-cash interest

 

1,969

 

1,141

Non-cash interest1,973 1,969 

Contingent consideration fair value adjustment

 

(342)

 

0

Contingent consideration fair value adjustment1,996 (342)

Asset impairment charges

 

575

 

0

Asset impairment charges— 575 

Gain on sale of ANDAs

 

(750)

 

0

Gain on sale of ANDAs— (750)

Changes in operating assets and liabilities:

 

 

  

Changes in operating assets and liabilities, net of acquisition:Changes in operating assets and liabilities, net of acquisition:

Accounts receivable, net

 

(21,884)

 

3,145

Accounts receivable, net(7,486)(21,884)

Inventories, net

 

(10,852)

 

2,823

InventoriesInventories1,032 (10,852)

Prepaid expenses and other current assets

 

1,563

 

1,202

Prepaid expenses and other current assets1,449 1,563 

Accounts payable

 

4,047

 

1,688

Accounts payable(800)4,047 

Accrued royalties

 

70

 

(1,719)

Accrued royalties(577)70 

Current income taxes payable, net

 

1,654

 

(6,281)

Current income taxes payable, net(261)1,654 

Accrued government rebates

 

3,948

 

914

Accrued government rebates(1,099)3,948 

Returned goods reserve

 

(903)

 

4,754

Returned goods reserve(3,601)(903)

Accrued expenses, accrued compensation, and other

 

1,186

 

7,003

Accrued expenses, accrued compensation, and other2,839 1,186 

Net Cash and Cash Equivalents (Used in)/Provided by Operating Activities

 

(30,426)

 

20,909

Net Cash and Cash Equivalents Provided by (Used in) Operating ActivitiesNet Cash and Cash Equivalents Provided by (Used in) Operating Activities42,050 (30,426)

Cash Flows From Investing Activities

 

  

 

  

Cash Flows From Investing Activities

Acquisition of Novitium Pharma LLC, net of cash acquired

 

(33)

 

0

Acquisition of Novitium Pharma LLC, net of cash acquired— (33)

Acquisition of product rights, IPR&D, and other related assets

 

(229)

 

(21,057)

Acquisition of product rights, IPR&D, and other related assets(4,329)(229)

Acquisition of property and equipment, net

 

(3,270)

 

(1,630)

Acquisition of property and equipment, net(4,850)(3,270)

Proceeds from the sale of long-lived assets

 

750

 

0

Proceeds from the sale of long-lived assets— 750 

Net Cash and Cash Equivalents Used in Investing Activities

 

(2,782)

 

(22,687)

Net Cash and Cash Equivalents Used in Investing Activities(9,179)(2,782)

Cash Flows From Financing Activities

 

  

 

  

Cash Flows From Financing Activities

Payments on borrowings under credit agreements

 

(1,500)

 

(5,206)

Payments on borrowings under credit agreements(1,500)(1,500)

Borrowings under Prior Revolver agreement

0

24,000

Series A convertible preferred stock dividends paid

 

(812)

 

0

Series A convertible preferred stock dividends paid(813)(812)

Proceeds from stock option exercises and ESPP purchases

 

206

 

336

Proceeds from stock option exercises and ESPP purchases1,446 206 

Payments of debt issuance costs

 

0

 

(141)

Proceeds from public offeringProceeds from public offering80,555 — 

Treasury stock purchases for restricted stock vests

 

(1,601)

 

(816)

Treasury stock purchases for restricted stock vests(4,086)(1,601)

Net Cash and Cash Equivalents (Used in)/Provided by Financing Activities

 

(3,707)

 

18,173

Net Change in Cash and Cash Equivalents

 

(36,915)

 

16,395

Cash and cash equivalents, beginning of period

 

105,301

 

12,867

Cash and cash equivalents, end of period

$

68,386

$

29,262

Net Cash and Cash Equivalents Provided by (Used in) Financing ActivitiesNet Cash and Cash Equivalents Provided by (Used in) Financing Activities75,602 (3,707)
Net Change in Cash, Cash Equivalents, and Restricted CashNet Change in Cash, Cash Equivalents, and Restricted Cash108,473 (36,915)
Cash, cash equivalents, and restricted cash, beginning of periodCash, cash equivalents, and restricted cash, beginning of period53,234 105,301 
Cash, cash equivalents, and restricted cash, end of periodCash, cash equivalents, and restricted cash, end of period$161,707 $68,386 

Reconciliation of cash, cash equivalents, and restricted cash, beginning of period

 

  

 

  

Reconciliation of cash, cash equivalents, and restricted cash, beginning of period

Cash and cash equivalents

$

100,300

$

7,864

Cash and cash equivalents$48,228 $100,300 

Restricted cash

 

5,001

 

5,003

Restricted cash5,006 5,001 

Cash, cash equivalents, and restricted cash, beginning of period

$

105,301

$

12,867

Cash, cash equivalents, and restricted cash, beginning of period$53,234 $105,301 

Reconciliation of cash, cash equivalents, and restricted cash, end of period

 

  

 

  

Reconciliation of cash, cash equivalents, and restricted cash, end of period

Cash and cash equivalents

$

63,385

$

24,261

Cash and cash equivalents$161,707 $63,385 

Restricted cash

 

5,001

 

5,001

Restricted cash— 5,001 

Cash, cash equivalents, and restricted cash, end of period

$

68,386

$

29,262

Cash, cash equivalents, and restricted cash, end of period$161,707 $68,386 

Supplemental disclosure for cash flow information:

 

  

 

  

Cash paid for interest, net of amounts capitalized

$

11,400

$

3,953

Cash paid for income taxes

$

124

$

8,360

Supplemental non-cash investing and financing activities:

 

  

 

  

Debt issuance costs in accrued expenses

$

0

$

81

Property and equipment purchased and included in accounts payable

$

779

$

119

11


Supplemental disclosure for cash flow information:
Cash paid for interest, net of amounts capitalized$15,456 $11,400 
Cash paid for income taxes$141 $124 
Right-of-use assets obtained in exchange for lease obligations$4,499 $— 
Supplemental non-cash investing and financing activities:
Property and equipment purchased and included in accounts payable$539 $779 
The accompanying notes are an integral part of these condensed consolidated financial statements.

10

12

1.

BUSINESS, PRESENTATION, AND RECENT ACCOUNTING PRONOUNCEMENTS


1.    BUSINESS, PRESENTATION, AND RECENT ACCOUNTING PRONOUNCEMENTS
Overview

ANI Pharmaceuticals, Inc. and its consolidated subsidiaries (together, “ANI,” the “Company,” “we,” “us,” or “our”) is a diversified bio-pharmaceutical company serving patients in need by developing, manufacturing, and marketing high quality branded and generic prescription pharmaceuticals, including for diseases with high unmet medical need. Our team is focused on delivering sustainable growth by building ascaling up our Rare Disease business through the successful Purifiedlaunch of our lead asset, Cortrophin Gel, franchise, strengthening our generics business with enhanced development capability, innovation in established brands and leveraging our manufacturing capabilities. Our fourthree pharmaceutical manufacturing facilities, of which two are located in Baudette, Minnesota, and one is located in East Windsor, New Jersey, and one is located in Oakville, Ontario, are together capable of producing oral solid dose products, as well as semi-solids, liquids and topicals, controlled substances, and potent products that must be manufactured in a fully-contained environment. On June 2, 2022, we announced that we intendintended to cease operations at our Oakville, Ontario, Canada manufacturing plant by the end of the first quarter 2023. This action iswas part of ongoing initiatives to capture operational synergies following our acquisition of Novitium Pharma LLC (“Novitium”) in November 2021. We willpreviously completed the transition of the majority of products manufactured or packaged in Oakville to one of our three U.S.-based manufacturing sites, and wesites. We are seeking to find potential buyers for the Oakville site.

Our operations are subject to certain risks and uncertainties including, among others, current and potential competitors with greater resources, dependence on significant customers, and possible fluctuations in financial results. The accompanying unaudited interim condensed consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities in the ordinary course of business. The propriety of using the going-concern basis is dependent upon, among other things, the achievement of future profitable operations, the ability to generate sufficient cash from operations, and potential other funding sources, including cash on hand, to meet our obligations as they become due. We believe the going-concern basis is appropriate for the accompanying unaudited interim condensed consolidated financial statements based on our current operating plan and business strategy for the 12 months following the issuance of this report.
In May 2023, through a public offering, we completed the issuance and sale of 2,183,545 shares of ANI common stock, resul

ting in net proceeds after issuance costs of $80.6 million.

On November 19, 2021, the Company, as borrower, entered into a credit agreement (the “Credit Agreement”) with Truist Bank and other lenders, which provides for credit facilities consisting of (i) a senior secured term loan facility in an aggregate principal amount of $300.0 million (the “Term Facility”) and (ii) a senior secured revolving credit facility in an aggregate commitment amount of $40.0 million, which may be used for revolving credit loans, swingline loans and letters of credit (the “Revolving Facility,” and together with the Term Facility, the “Credit Facility”).
Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Certain prior period information has been reclassified to conform to the current period presentation. In our opinion, the accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly our financial position, results of operations, comprehensive income (loss), and cash flows. The consolidated balance sheet at December 31, 20212022 has been derived from audited financial statements as of that date. The unaudited interim condensed consolidated resultsstatements of operations are not necessarily indicative of the results that may occur for the full fiscal year. Certain information and footnote disclosure normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to instructions, rules, and regulations prescribed by the U.S. Securities and Exchange Commission (the “SEC”). We believe that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited interim condensed consolidated financial statements are read in conjunction with the audited financial statements and notes previously distributed in our Annual Report on Form 10-K for the year ended December 31, 2021.

2022 (the “2022 Form 10-K”).

13


Principles of Consolidation

The unaudited interim condensed consolidated financial statements include the accounts of ANI Pharmaceuticals, Inc. and its subsidiaries. All intercompany accounts and transactions are eliminated in consolidation.

11

Foreign Currency

We have subsidiariesceased operations at our subsidiary in Oakville, Ontario, Canada as of March 31, 2023. We currently have a subsidiary located in Canada and India. The Canada-based subsidiary conductsconducted its transactions in U.S. dollars and Canadian dollars, but its functional currency iswas the U.S. dollar. The Indian-based subsidiary generally conducts its transactions in Indian rupees, which is also its functional currency. The results of any non-U.S. dollar transactions and balances are remeasured in U.S. dollars at the applicable exchange rates during the period and resulting foreign currency transaction gains and losses are included in the determination of net income. Our gain or loss on transactions denominated in foreign currencies and the translation impact of local currencies to U.S. dollars was immaterial for the three and six months ended June 30, 20222023 and 2021.2022. Unless otherwise noted, all references to “$” or “dollar” refer to the U.S. dollar.

The Company’s asset and liability accounts are translated using the current exchange rate as of the balance sheet date. Shareholders’ equity accounts are translated using historical rates at the balance sheet date. Net revenues and expense accounts are translated using a weighted average exchange rate over the period ended on the balance sheet date. Adjustments resulting from the translation of the financial statements of the Company’s foreign subsidiaries into U.S. dollars are accumulated as a separate component of shareholders’ equity within accumulated other comprehensive income, net of tax.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. In the condensed consolidated financial statements, estimates are used for, but not limited to, variable consideration determined based on accruals for chargebacks, administrative fees and rebates, government rebates, returns and other allowances, income tax provision or benefit, deferred taxes and valuation allowance, stock-based compensation, revenue recognition, allowance for inventory obsolescence, valuation of financial instruments and intangible assets, accruals for contingent liabilities, including contingent consideration in acquisitions, fair value of long-lived assets, determination of right-of-use assets and lease liabilities, allowance for credit losses, purchase price allocations, and the depreciable lives of long-lived assets. Because of the uncertainties inherent in such estimates, actual results may differ from those estimates. Management periodically evaluates estimates used in the preparation of the financial statements for reasonableness.

Restructuring Activities

We define restructuring activities to include costs directly associated with exit or disposal activities. Such costs include cash employee contractual severance and other termination benefits, one-time employee termination severance and benefits, contract termination charges, impairment and acceleration of depreciation associated with long-lived assets, and other exit or disposal costs. In general, we record involuntary employee- related exit and disposal costs when there is a substantive plan for employee severance and related payments are probable and estimable. For one-time termination benefits, including those with a service requirement, expense is recorded when the employees are entitled to receive such benefits and the amount can be reasonably estimated. Expense related to one-time termination benefits with a service requirement is recorded over time, as the service is completed. Contract termination fees and penalties, and other exit and disposal costs are generally recorded as incurred. Restructuring activities are recognized as an operating expense in our statementconsolidated statements of operations.

Recent Accounting Pronouncements

Recent Accounting Pronouncements Not Yet Adopted

In December 2022, the Financial Accounting Standards Board issued ASU 2022-06, which extended the sunset date of the reference rate reform in ASU 848 from December 31, 2022 to December 31, 2024. We have not adopted the guidance and are currently evaluating the impact, if any, that the adoption of this guidance will have on our consolidated financial statements.
14


We have evaluated all other issued and unadopted Accounting Standards Updates and believe the adoption of these standards will not have a material impact on our condensed consolidated statements of operations, comprehensive income, balance sheets, or cash flows.

12

Table of Contents

2.    REVENUE RECOGNITION AND RELATED ALLOWANCES

2.

REVENUE RECOGNITION AND RELATED ALLOWANCES

Revenue Recognition

We recognize revenue using the following steps:

Identification of the contract, or contracts, with a customer;
Identification of the performance obligations in the contract;
Determination of the transaction price, including the identification and estimation of variable consideration;
Allocation of the transaction price to the performance obligations in the contract; and
Recognition of revenue when we satisfy a performance obligation.
Identification of the contract, or contracts, with a customer;

Identification of the performance obligations in the contract;
Determination of the transaction price, including the identification and estimation of variable consideration;
Allocation of the transaction price to the performance obligations in the contract; and
Recognition of revenue when we satisfy a performance obligation.
We derive our revenues primarily from sales of generic, rare disease, and brandedestablished brand pharmaceutical products.products, royalties, and other pharmaceutical services. Revenue is recognized when our obligations under the terms of our contracts with customers are satisfied, which generally occurs when control of the products we sell is transferred to the customer. We estimate variable consideration after considering applicable information that is reasonably available. We generally do not have incremental costs to obtain contracts that would otherwise not have been incurred. We do not adjust revenue for the promised amount of consideration for the effects of a significant financing component because our customers generally pay us within 100 days.

All revenue recognized in the accompanying unaudited interim condensed consolidated statements of operations is considered to be revenue from contracts with customers. The following table depicts the disaggregation of revenue:

Three Months EndedSix Months Ended
Products and ServicesJune 30,
2023
June 30,
2022
June 30,
2023
June 30,
2022
(in thousands)
Sales of generic pharmaceutical products$63,317 $49,863 $127,030 $98,970 
Sales of established brand pharmaceutical products, royalties, and other pharmaceutical services28,926 13,790 55,669 27,868 
Sales of rare disease pharmaceutical products24,304 10,202 40,634 11,494 
Total net revenues$116,547 $73,855 $223,333 $138,332 
Three Months EndedSix Months Ended
Timing of Revenue RecognitionJune 30,
2023
June 30,
2022
June 30,
2023
June 30,
2022
(in thousands)
Performance obligations transferred at a point in time$116,547 $73,324 $222,958 $137,235 
Performance obligations transferred over time— 531 375 1,097 
Total$116,547 $73,855 $223,333 $138,332 
15


Three Months Ended

Six Months Ended

Products and Services

June 30, 

June 30, 

June 30, 

June 30, 

(in thousands)

    

2022

    

2021

    

2022

    

2021

    

Sales of generic pharmaceutical products

$

49,863

$

34,199

$

98,970

$

66,812

Sales of established brand pharmaceutical products

 

8,463

 

11,038

 

16,915

 

18,555

Sales of rare disease pharmaceutical products

10,202

11,494

Sales of contract manufactured products

 

4,389

 

2,322

 

7,293

 

4,895

Royalties from licensing agreements

 

194

 

 

2,097

 

11,210

Product development services

 

531

 

97

 

1,097

 

255

Other

 

213

 

969

 

466

 

1,419

Total net revenues

$

73,855

$

48,625

$

138,332

$

103,146

Three Months Ended

Six Months Ended

Timing of Revenue Recognition

June 30, 

June 30, 

June 30, 

June 30, 

(in thousands)

    

2022

    

2021

    

2022

    

2021

    

Performance obligations transferred at a point in time

$

73,324

$

48,528

$

137,235

$

102,891

Performance obligations transferred over time

 

531

 

97

 

1,097

 

255

Total

$

73,855

$

48,625

$

138,332

$

103,146

In the three and six months ended June 30, 20222023 and 2021,2022, we did not incur, and therefore did not defer, any material incremental costs to obtain or fulfill contracts. We recognized an increase of $5.0 million to net revenue from performance obligations satisfied in prior periods during the six months ended June 30, 2023, consisting primarily ofrevised estimates for variable consideration, including chargebacks, rebates, returns, and other allowances, related to prior period sales. We recognized a decrease of $3.7 million to net revenue from performance obligations satisfied in prior periods during the six months ended June 30, 2022, consisting primarily ofrevised estimates for variable consideration, including chargebacks, rebates, returns, and other allowances, related to prior period sales. We recognized an increase of $10.3 million to net revenue from performance obligations satisfied in prior periods during the six months ended June 30, 2021, consisting primarily of a final royalty revenue related to

13

the Kite license agreement pursuant to the Tripartite Agreement as described herein in Royalties from Licensing Agreements. We provide technical transfer services to customers, for which services are transferred over time. As of June 30, 20222023 and December 31, 2021,2022, we did not have any contract assets related to revenue recognized based on percentage of completion but not yet billed. Our deferred revenue balance as of June 30, 2022,2023, December 31, 2021,2022, and December 31, 20202021 was immaterial. For the three and six months ended June 30, 2022,2023, we recognized $0.1 million of revenue that was included indid not recognize deferred revenue as of December 31, 2021. revenue. For the three and six months ended June 30, 2021,2022, we recognized less than $0.1 million of revenue that was included in deferred revenue as of December 31, 2020.2021. Deferred revenue is included in accrued expenses and other in the unaudited interim condensed consolidated balance sheets.

Revenue from Sales

As of Generic and Branded Pharmaceutical Products

Product salesJune 30, 2023, the aggregate amount of the transaction price allocated to the remaining performance obligations for all open contract manufacturing customer contracts was $4.1 million, which consists of sales of our generic and branded pharmaceutical products, including rare disease pharmaceuticalfirm orders for contract manufactured products. Our sole performance obligation in our contracts is to provide pharmaceutical products to customers. Our products are sold at pre-determined standalone selling prices and our performance obligation is considered to be satisfied when control of the product is transferred to the customer. Control is generally transferred to the customer upon delivery of the product to the customer, as our pharmaceutical products are generally sold on an FOB destination basis and because inventory risk and risk of ownership passes to the customer upon delivery. Payment termsWe will recognize revenue for these salesperformance obligations as they are generally less than 100 days.

satisfied, which is anticipated within six months.

Variable consideration
Sales of our pharmaceutical products are subject to variable consideration due to chargebacks, government rebates, returns, administrative and other rebates, and cash discounts. Estimates for these elements of variable consideration require significant judgment.

The following table summarizes activity in the condensed consolidated balance sheets for accruals and allowances for the six months ended June 30, 2023 and 2022, respectively:
Accruals for Chargebacks, Returns, and Other Allowances
(in thousands)ChargebacksGovernment
Rebates
ReturnsAdministrative
Fees and Other
Rebates
Prompt
Payment
Discounts
Balance at December 31, 2021$94,066 $5,492 $35,831 $13,100 $4,642 
Accruals/Adjustments320,191 9,356 15,057 20,701 10,494 
Credits Taken Against Reserve(274,714)(5,408)(15,989)(19,283)(8,938)
Balance at June 30, 2022 (1)$139,543 $9,440 $34,899 $14,518 $6,198 
Balance at December 31, 2022$148,562 $10,872 $33,399 $9,442 $6,488 
Accruals/Adjustments290,826 11,100 5,995 25,606 11,028 
Credits Taken Against Reserve(362,253)(10,001)(9,596)(25,177)(12,653)
Balance at June 30, 2023 (1)$77,135 $11,971 $29,798 $9,871 $4,863 

(1)Chargebacks and 2021, respectively:

Accruals for Chargebacks, Returns, and Other Allowances

Administrative

Prompt

Government

Fees and Other

Payment

(in thousands)

    

Chargebacks

    

Rebates

    

Returns

    

Rebates

    

Discounts

Balance at December 31, 2020 (1)

$

88,746

$

7,826

$

27,155

$

8,906

$

3,839

Accruals/Adjustments

 

214,125

 

12,980

 

21,058

 

32,207

 

13,315

Credits Taken Against Reserve

 

(220,776)

(12,066)

 

(16,309)

 

(33,071)

 

(13,682)

Balance at June 30, 2021 (1)

$

82,095

$

8,740

$

31,904

$

8,042

$

3,472

Balance at December 31, 2021 (1)

$

94,066

$

5,492

$

35,831

$

13,100

$

4,642

Accruals/Adjustments

 

320,191

 

9,356

 

15,057

 

20,701

 

10,494

Credits Taken Against Reserve

 

(274,714)

(5,408)

 

(15,989)

 

(19,283)

 

(8,938)

Balance at June 30, 2022 (1)

$

139,543

$

9,440

$

34,899

$

14,518

$

6,198

(1)ChargebacksPrompt Payment Discounts are included as an offset to accounts receivable in the unaudited interim condensed consolidated balance sheets. Administrative Fees and Other Rebates and Prompt Payment Discounts are included as an offset to accounts receivable or as accrued expenses and other in the unaudited interim condensed consolidated balance sheets. Returns are included in returned goods reserve in the unaudited interim condensed consolidated balance sheets. Government Rebates are included in accrued government rebates in the unaudited interim condensed consolidated balance sheets.

Contract Manufacturing Product Sales Revenue

Contract manufacturing arrangements consist of agreements in which we manufacture a pharmaceutical product on behalf of a third party. Our performance obligation is to manufacture and provide pharmaceutical products to customers, typically pharmaceutical companies. The contract manufactured products are sold at pre-determined

14

standalone selling prices and our performance obligations are considered to be satisfied when control of the product is transferred to the customer. Control is transferred to the customer when the product leaves our dock to be shipped to the customer, as our contract manufactured pharmaceutical products are sold on an FOB shipping point basis and the inventory risk and risk of ownership passes to the customer at that time. Payment terms for these sales are generally fewer than two months. We estimate returns based on historical experience. Historically, we have not had material returns for contract manufactured products.

As of June 30, 2022, the aggregate amount of the transaction price allocated to the remaining performance obligations for all open contract manufacturing customer contracts was $7.2 million, which consists of firm orders for contract manufactured products. We will recognize revenue for these performance obligations as they are satisfied, which is anticipated within six months.

Royalties from Licensing Agreements

From time to time, we enter into transition agreements with the sellers of products we acquire, under which we license to the seller the right to sell the acquired products. Therefore, we recognize the revenue associated with sales of the underlying products as royalties. Because these royalties are sales-based, we recognize the revenue when the underlying sales occur, based on sales and gross profit information received from the sellers. Upon full transition of the products and upon launching the products under our own labels, we recognize revenue for the products as sales of generic or branded pharmaceutical products, as described above. From time to time, we enter into supply and distribution agreements with contract manufacturing customers, under which we license to the contract manufacturing customer the right to sell our products, and we are entitled to a royalty on sales made by the contract manufacturing customer under these arrangements. Therefore, we recognize the revenue associated with sales of the underlying products as royalties. Because these royalties are sales-based, we recognize the revenue when the underlying sales occur, based on sales and gross profit information received from the contract manufacturing customers.

Pursuant to a 2012 Tripartite Agreement (the “Tripartite Agreement”) between the Company, The Regents of the University of California (“The Regents”), and Cabaret Biotech Ltd., an Israeli corporation (“Cabaret”) (as assignee of Dr. Zelig Eshhar’s rights under the Tripartite Agreement), and subsequent amendments thereto and assignments thereof, we were entitled to receive a percentage of the milestone and sales royalty payments paid to Cabaret by Kite Pharma, Inc. (“Kite”), a subsidiary of Gilead Sciences, Inc., under a license agreement. Under such license agreement, Kite licensed from Dr. Eshhar and Cabaret the patent rights covered by the Tripartite Agreement and agreed to make certain payments to Cabaret based on, among other things, Kite’s sales of Yescarta®. Under the Tripartite Agreement, portions of these payments were to be distributed to The Regents and to us.

Historically, we recorded royalty income related to Yescarta® on an accrual basis utilizing our best estimate of royalties earned based upon information available in the public domain, our understanding of the various agreements governing the royalty, and other information received from time to time from the relevant parties. Generally, cash was received directly from Cabaret once a year. The agreements governing this royalty were subject to multiple actions in multiple jurisdictions, including litigation between Cabaret and Kite, and separately, ANI and Cabaret. In the first quarter of 2021, we became aware that the litigation between Cabaret and Kite was dismissed. In April 2021, Cabaret and the Company settled all amounts due for amounts actually received by Cabaret or Eshhar for the licensing or use of the patent rights governed by the Kite license agreement. As a result, we recognized $11.2 million as royalties from licensing agreements in our net revenues during the three month period ended March 31, 2021. In addition, during the three month period ended March 31, 2021, we agreed to reimburse Cabaret $0.4 million, which has been recorded as other expense, net in the accompanying unaudited interim condensed consolidated statement of operations, relatedbalance sheets. Administrative Fees and Other Rebates are included as an offset to certain legal expenditures incurred. We received final payment from Cabaretaccounts receivable or as accrued expenses and other in May 2021. Based upon the events that led tounaudited interim condensed consolidated balance sheets. Returns are included in returned goods reserve in the dismissal ofunaudited interim condensed consolidated balance sheets. Government Rebates are included in accrued government rebates in the litigation between Cabaret and Kite, we do not expect to receive any future royalty income related to the Kite license agreement. In conjunction with payment of amounts due to us, all outstanding litigation between the Company and Cabaret was dismissed.unaudited interim condensed consolidated balance sheets.

15

Product Development Services Revenue

We provide product development services to customers, which are performed over time. These are services primarily performed at our facilities in East Windsor, New Jersey and Oakville, Ontario. As we intend to cease operations at the Oakville, Ontario facility by the first quarter of 2023, we expect to transition the product development services at the facility to one of our three U.S.-based manufacturing sites.

The duration of these development projects can be up to three years. Deposits received from these customers are recorded as deferred revenue until revenue is recognized. For contracts with no deposits and for the remainder of contracts with deposits, we invoice customers as our performance obligations are satisfied. We recognize revenue on a percentage of completion basis, which results in contract assets on our balance sheet. As of June 30, 2022, the aggregate amount of the transaction price allocated to the remaining performance obligations for all open product development services contracts was $0.3 million. We expect to satisfy these performance obligations within the next nine months.

Credit Concentration

Our customers are primarily wholesale distributors, chain drug stores, group purchasing organizations, and pharmaceutical companies.

16


During the three months ended June 30, 2023, we had four customers that accounted for 10% or more of net revenues. During the six months ended June 30, 2023 and the three and six months ended June 30, 2022 and 2021, we had three customers that accounted for 10% or more of net revenues. As of June 30, 2022,2023, accounts receivable from these customers totaled 83%84% of accounts receivable, net.

The three customers represent the total percentage of net revenues as follows:

Three Months Ended

Six Months Ended

June 30, 

June 30, 

June 30, 

June 30, 

    

2022

    

2021

    

2022

    

    

2021

    

Customer 1

23

%

34

%

27

%

29

%

Customer 2

19

%

26

%

19

%

22

%

Customer 3

15

%

14

%

14

%

14

%

3.

BUSINESS COMBINATION

Summary

On November 19, 2021, we completed our previously announced acquisition of all of the interests of Novitium pursuant to the terms of the Agreement and Plan of Merger (the “Merger Agreement”), dated as of March 8, 2021, for cash consideration, 2,466,654 restricted shares of our common stock valued at $91.2 million based on our closing stock price of $43.54 on the date of closing and discounted for lack of marketability due to restrictions on shares, and up to $46.5 million in additional contingent consideration. Additionally, we agreed to pay certain debts of Novitium in the amount of $8.5 million, which we deemed to be paid in consummation of the transaction closing, and not assumed liabilities, and thus were included as additional cash consideration. This acquisition was accounted for as a business combination. The contingent consideration is based on the achievement of certain milestones, including milestones on gross profit of Novitium portfolio products over a 24-month period, regulatory filings completed during this 24-month period, and a percentage of net profits on certain products that are launched in the future. As of the closing of the acquisition, the contingent consideration had a fair value of $30.8 million. Refer to Note 14 for changes in contingent consideration and changes in fair value. Total consideration including cash, restricted shares and contingent consideration was valued at $206.5 million.

16

Three Months EndedSix Months Ended
June 30,
2023
June 30,
2022
June 30,
2023
June 30,
2022
Customer 132 %23 %32 %27 %
Customer 214 %19 %14 %19 %
Customer 313 %15 %13 %14 %
Customer 410 %%%%

Table of Contents

3.    RESTRUCTURING

Purchase consideration consisted of the following:

    

(in thousands)

Cash consideration

$

88,109

Repayment of Novitium debts

 

8,493

Fair value of restricted shares

 

91,199

Fair value of contingent consideration

 

30,800

Gross consideration

$

218,601

Cash acquired

12,076

Net consideration

$

206,525

The cash consideration was funded in part by borrowings under our new credit facility (Note 5) and through issuance of shares of Series A convertible preferred stock (Note 10). We acquired Novitium due to its proven track record of being a research and development growth engine capable of fueling sustainable growth, to expand our research and development pipeline via niche opportunities, to enhance our contract development and manufacturing organization (“CDMO”) business and U.S.-based manufacturing capacity, and to diversify our revenue base.

The preliminary allocation of the fair value of the Novitium acquisition, reflective of certain immaterial measurement period adjustments during the six months ended June 30, 2022, is shown in the table below. The allocation of the fair value will be finalized when all measurement period adjustments, if applicable, are complete.

    

(in thousands)

Total Purchase Consideration

$

218,601

Cash and cash equivalents

 

12,076

Accounts receivable

 

27,185

Inventories

 

14,460

Prepaid expenses and other current assets

 

1,891

Property and equipment

 

14,331

Intangible assets

139,200

Goodwill

 

24,641

Other non-current assets

1,413

Total assets acquired

 

235,197

Accounts payable

 

1,560

Accrued expense and other current liabilities

6,035

Accrued compensation and other related expenses

4,909

Accrued government rebates

744

Returned goods reserve

2,202

Other non-current liabilities

1,146

Total liabilities assumed

 

16,596

Net assets acquired

$

218,601

The net assets were recorded at their estimated fair value. In valuing acquired assets and liabilities, fair value estimates were based primarily on future expected cash flows, market rate assumptions for contractual obligations, and appropriate discount rates. In connection with the acquisition, we recognized $46.9 million of indefinite-lived in-process research and development intangible assets, $67.4 million of acquired ANDA intangible assets, and $24.9 million of customer relationship intangible assets.

Goodwill is considered an indefinite-lived asset and relates primarily to intangible assets that do not qualify for separate recognition, such as the assembled workforce and synergies between the entities. Goodwill established as a result of the acquisition is tax deductible in the U.S.

17

Novitium operations generated $19.9 million and $39.1 million of revenue during the three and six months ended June 30, 2022, respectively. Novitium recorded a net income of $2.5 million and $2.3 million during the three and six months ended June 30, 2022, respectively.

Restricted Shares

The Novitium acquisition consideration included 2,466,654 restricted shares, which were valued at $91.2 million. These shares contain restrictions on their transfer for periods from three to 24 months following the completion of the acquisition. A Finnerty model was used to value the restricted shares. It includes inputs of not readily observable market data, which are Level 3 inputs. These unobservable inputs include ANI stock volatility with a range of 65% to 71%, and the discounted lack of marketability with a range of 7.5% to 21.5% depending on the length of restriction.

4. RESTRUCTURING

On June 2, 2022, we announced that we intendintended to cease operations at our Oakville, Ontario, Canada manufacturing plant by the first quarter of 2023. This action iswas part of ongoing initiatives to capture operational synergies following our acquisition of Novitium in November 2021. We willhave completed the transition of the majority of products manufactured or packaged in Oakville to one of our three U.S.-based manufacturing sites. We are seeking to find potential buyers for the Oakville site, though there can be no assurance as to when or if that will occur or the amount of any net proceeds that may be received.

For the three and six months ended June 30, 2022,2023, restructuring activities resulted in expenses of $2.6 million and included $1.4of $1.1 million. This included $0.2 million of severance and other employee benefit costs $0.9and $0.7 million of asset-related impairment and accelerated depreciation costs and $0.3$0.2 million of for other costs.miscellaneous costs, respectively. The restructuring activities recognized in the three months ended June 30, 2023 was immaterial. As of June 30, 2022, $1.32023, $0.1 million of the severance and other employee benefits are unpaid and accrued. These costs are recorded as restructuring activities, an operating item, in the accompanying unaudited interim condensed consolidated statementstatements of operations.operations and are part of the Generics, Established Brands, and Other segment. Certain of the severance and other employee benefit costs contain a service requirement, and as such, are beingwere accrued over time as they arewere earned. We expect to incur additional charges of approximately $1.4 million in these costs over the next nine months, and approximately $3.1 to $3.6 million future asset-related accelerated depreciation charges over this period. These costs are part of the Generics, Established Brands, and Other segment.

In conjunction with the planned exit of our Canadian facility, we have determined that the land and building at our Oakville, Ontario, Canada plant will be sold together over the transition period and meet the criteria to be classified as held for sale as of June 30, 2022.2023. The land and building have a net carrying value of $8.0 million, which is presented as assets held for saleon the accompanying unaudited interim condensed consolidated balance sheets. These assets are part of the Generics, Established Brands, and Other segment.

5.

INDEBTEDNESS

4.    INDEBTEDNESS
Credit Facility

On November 19, 2021, the Company completed its acquisition (the “Acquisition”) of Novitium pursuant to the terms of the Agreement and Plan of Merger, dated as of March 8, 2021 (the “Merger Agreement”), by and among the Company, Novitium, Nile Merger Sub LLC, a Delaware limited liability company, and certain other parties, with Novitium becoming a wholly owned subsidiary of ANI.
On November 19, 2021, the Company, as borrower, entered into a credit agreement (the “Credit Agreement”) with Truist Bank and other lenders, which provides for credit facilities consisting of (i) a senior secured term loan facility in an aggregate principal amount of $300.0 million (the “Term Facility”) and (ii) a senior secured revolving credit facility in an aggregate commitment amount of $40.0 million, which may be used for revolving credit loans, swingline loans and letters of credit (the “Revolving Facility,” and together with the Term Facility, the “Credit Facility”).

The Term Facility proceeds were used to finance the cash portion of the consideration under the Merger Agreement, repay our existing credit facility, and pay fees, costs and expenses incurred in connection with the merger. Proceeds from the Revolving Facility are expected to be used, subject to certain limitations, for working capital and other general corporate purposes.

18

17


The Term Facility matures in November 2027 and the Revolving Facility in November 2026. Each permits both base rate borrowings (“ABR Loans”) and Eurodollar rate borrowings (“Eurodollar Loans”), plus a spread of (a) 5.00% above the base rate in the case of ABR Loans under the Term Facility and 6.00% above the LIBOR Rate (as defined in the Credit Agreement) in the case of LIBOR loans under the Term Facility and (b) 3.75% above the base rate in the case of ABR Loans under the Revolving Facility and 4.75% above the LIBOR Rate (as defined in the Credit Agreement) in the case of loans under the Revolving Facility. The interest rate under the Term Facility was 7.06%11.15% at June 30, 2022.2023. The Credit Facility has a subjective acceleration clause in case of a material adverse effect. The Term Facility includes a repayment schedule, pursuant to which $750 thousand of the loan will be paid in quarterly installments during the twelve months ended June 30, 2023.2024. As of June 30, 2022,2023, $3.0 million of the loan is recorded as current borrowings in the unaudited interim condensed consolidated balance sheets. As of June 30, 2022,2023, we had not drawn on the Revolving Facility and $40.0 million remained available for borrowing.

borrowing subject to certain conditions.

In July 2023, the Company’s debt instruments that referenced LIBOR were amended to replace the benchmark rate with the Secured Overnight Financing Rate (

SOFR”) in anticipation of the termination of published LIBOR rates.

We incurred $14.0 million in deferred debt issuance costs associated with the Credit Facility. Costs allocated to the Term Facility are classified as a direct reduction to the current and non-current portion of the borrowings, depending on their nature. Costs allocated to the Revolving Facility are classified as other current and other non-current assets, depending on their nature. We incur a commitment fee of 0.5% per annum on any unused portion of the Revolving Facility.

In connection with entry into the Credit Facility, on November 19, 2021, we terminated our existing Amended and Restated Credit Agreement, dated as of December 27, 2018 (the “Prior Credit Agreement”), among the Company, as borrower, and Citizens Bank with other lenders.

The Credit Facility is secured by a lien on substantially all of ANI Pharmaceuticals, Inc.’s and its principal domestic subsidiary’s assets and any future domestic subsidiary guarantors’ assets. The Credit Facility is subject to customary financial and nonfinancial covenants.

The carrying value of the current and non-current components of the Term Facility as of June 30, 20222023 and December 31, 20212022 are:

Current
(in thousands)June 30,
2023
December 31,
2022
Current borrowing on debt$3,000 $3,000 
Deferred financing costs(2,150)(2,150)
Current debt, net of deferred financing costs$850 $850 
Non-Current
(in thousands)June 30,
2023
December 31,
2022
Non-current borrowing on debt$292,500 $294,000 
Deferred financing costs(7,256)(8,331)
Non-current debt, net of deferred financing costs and current component$285,244 $285,669 

Current

June 30, 

December 31, 

(in thousands)

    

2022

    

2021

Current borrowing on debt

$

3,000

    

$

3,000

Deferred financing costs

 

(2,150)

 

(2,150)

Current debt, net of deferred financing costs

$

850

$

850

Non-Current

June 30, 

December 31, 

(in thousands)

    

2022

    

2021

Non-current borrowing on debt

$

295,500

$

297,000

Deferred financing costs

 

(9,405)

 

(10,480)

Non-current debt, net of deferred financing costs and current component

$

286,095

$

286,520

As of June 30, 2022,2023, we had a $298.5$295.5 million balance on the Term Facility. Of the $0.9$0.7 million of unamortized deferred debt issuance costs allocated to the Revolving Facility, $0.7$0.5 million is included in other non-current assets in the unaudited interim condensed consolidated balance sheets, and $0.2$0.2 million is included in prepaid expenses and other current assets in the unaudited interim condensed consolidated balance sheets.

19

The contractual maturity of our Term Facility is as follows for the years ending December 31:

period ending:

(in thousands)Term Facility
2023 (remainder of the year)$1,500 
20243,000 
20253,000 
20263,000 
2027285,000 
Total$295,500 
18


(in thousands)

    

Term Facility

2022

$

1,500

2023

 

3,000

2024

 

3,000

2025

 

3,000

2026

3,000

2027 and thereafter

285,000

Total

$

298,500

The following table sets forth the components of total interest expense related to the Term Facility during the three and six months ended June 30, 20222023 and interest expense under the Prior Credit Agreement during the three and six months ended June 30, 2021,2022, as recognized in the accompanying unaudited interim condensed consolidated statements of operations for the three and six months ended June 30, 20222023 and 2021:

Three Months Ended

Six Months Ended

June 30, 

June 30, 

June 30, 

June 30, 

(in thousands)

    

2022

    

2021

    

2022

    

2021

    

Contractual coupon

$

6,122

$

2,386

$

12,180

$

4,690

Amortization of finance fees

 

590

 

176

 

1,181

 

352

Capitalized interest

 

(19)

 

(31)

 

(49)

 

(57)

$

6,693

$

2,531

$

13,312

$

4,985

6.

DERIVATIVE FINANCIAL INSTRUMENT AND HEDGING ACTIVITY

2022:

Three Months EndedSix Months Ended
(in thousands)June 30,
2023
June 30,
2022
June 30,
2023
June 30,
2022
Contractual coupon$7,620 $6,122 $14,970 $12,180 
Amortization of finance fees591 590 1,182 1,181 
Capitalized interest(277)(19)(298)(49)
$7,934 $6,693 $15,854 $13,312 
5.    DERIVATIVE FINANCIAL INSTRUMENT AND HEDGING ACTIVITY
At times we use derivative financial instruments to hedge our exposure to interest rate risks. All derivative financial instruments are recognized as either assets or liabilities at fair value on the consolidated balance sheet and are classified as current or non-current based on the scheduled maturity of the instrument.

When we enter into a hedge arrangement and intend to apply hedge accounting, we formally document the hedge relationship and designate the instrument for financial reporting purposes as a fair value hedge, a cash flow hedge, or a net investment hedge. When we determine that a derivative financial instrument qualifies as a cash flow hedge and is effective, the changes in fair value of the instrument are recorded in accumulated other comprehensive loss, net of tax in our consolidated balance sheets and will be reclassified to earnings when the hedged item affects earnings.

In April 2020, we entered into an interest rate swap with Citizens Bank, N.A. to manage our exposure to changes in LIBOR-based interest rates underlying total borrowings under term facilities related to our Prior Credit Agreement. The interest rate swap matures in December 2026. Concurrent with the termination of the Prior Credit Agreement and entry into the Credit Agreement with Truist Bank, the interest rate swap with a notional value of $168.6 million at origin on November 21, 2021 was novated and Truist Bank is the new counterparty. The swap is used to manage changes in LIBOR-based interest rates underlying a portion of the borrowing under the Term Facility. The interest rate swap provides an effective fixed interest rate of 2.26% and has been designated as an effective cash flow hedge and therefore qualifies for hedge accounting. As of June 30, 2022,2023, the notional amount of the interest rate swap was $158.6$143.5 million and decreases quarterly by approximately $4.0 million until December 2023, after which it remains static until maturity in December 2026. As of June 30, 2022,2023, the fair value of the interest rate swap asset recorded in derivatives and other non-current assets in the unaudited interim condensed consolidated balance sheets was $3.6$9.2 million. As of June 30, 2022, $5.42023, $13.8 million was recorded in accumulated other comprehensive loss,income, net of tax in the unaudited interim condensed consolidated balance sheets.

20

During the three and six months ended June 30, 2022,2023 , the change in fair value of the interest rate swaps was a gain of $2.9 million and $9.8 million, respectively.$2.0 million. During the six months ended June 30, 2023, the change in fair value of the interest rate swaps was a loss of $0.2 million. During the three and six months ended June 30, 2022,2023, gains on the interest rate swap of $2.7$2.6 million and $8.5$1.5 million were recorded in accumulated other comprehensive loss,(loss) income, net of tax in our unaudited interim condensed consolidated statements of comprehensive (loss)/income, respectively. Differences between the hedged LIBOR rate and the fixed rate are recorded as interest expense in the same period that the related interest is recorded for the Term Facility based on the LIBOR rate. In the three and six months ended June 30, 2022, $1.02023, $0.6 million and $2.0$1.1 million of interest expense was recognized in relation to the interest rate swaps, respectively. Included in this amount for the three months ended June 30, 20222023 and 20212022 are reclassifications out of accumulated other comprehensive income/lossincome (loss) of $0.7 million and $0.9$0.7 million and during the six months ended June 30, 2023 and 2022 and 2021 are $1.4$0.7 million and $1.8$1.4 million in expense, respectively, related to terminated and de-designated cash flow hedges.

7.

EARNINGS (LOSS) PER SHARE

6.    EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding during the period.

19


For periods of net income, and when the effects are not anti-dilutive, we calculate diluted earnings (loss) per share by dividing net income available to common stockholders by the weighted-average number of shares outstanding plus the impact of all potential dilutive common shares, consisting primarily of common stock options, shares to be purchased under our Employee Stock Purchase Plan (“ESPP”), unvested restrictedand performance stock awards, and stock purchase warrants,units, using the more dilutive of the treasury stock or the two-class method. For periods of net loss, diluted loss per share is calculated similarly to basic loss per share.

Our unvested restricted shares and Series A convertible preferred stock shares contain non-forfeitable rights to dividends, and therefore are considered to be participating securities; in periods of net income, the calculation of basic and diluted earnings (loss) per share excludes from the numerator net income (but not net loss) attributable to the unvested restricted shares and the common shares assumed converted from the preferred shares and excludes the impact of those shares from the denominator.

Earnings (loss) per share for the three and six months ended June 30, 20222023 and 20212022 are calculated for basic and diluted earnings (loss) per share as follows:

Basic

Diluted

Basic

Diluted

(in thousands, except per share amounts)

Three Months Ended June 30, 

Three Months Ended June 30, 

Six Months Ended June 30, 

Six Months Ended June 30, 

  

2022

  

2021

  

2022

  

2021

  

2022

  

2021

  

2022

  

2021

  

Net loss

$

(14,923)

$

(14,106)

$

(14,923)

$

(14,106)

$

(35,053)

$

(14,020)

$

(35,053)

$

(14,020)

Net income allocated to participating securities

 

 

 

 

 

 

 

 

Dividends on Series A convertible preferred stock

(407)

(407)

(812)

(812)

Net loss available to common shareholders

$

(15,330)

$

(14,106)

$

(15,330)

$

(14,106)

$

(35,865)

$

(14,020)

$

(35,865)

$

(14,020)

Basic Weighted-Average Shares Outstanding

 

16,272

 

12,085

 

16,272

 

12,085

 

16,205

 

12,045

 

16,205

 

12,045

Dilutive effect of stock options and ESPP

 

 

 

 

Diluted Weighted-Average Shares Outstanding

 

16,272

 

12,085

 

16,205

 

12,045

Loss per share

$

(0.94)

$

(1.17)

$

(0.94)

$

(1.17)

$

(2.21)

$

(1.16)

$

(2.21)

$

(1.16)

21

BasicDilutedBasicDiluted
(in thousands, except per share amounts)Three Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,Six Months Ended June 30,
20232022202320222023202220232022
Net income (loss) available to common shareholders$5,838 $(15,330)$5,838 $(15,330)$6,871 $(35,865)$6,871 $(35,865)
Earnings allocated to participating securities(589)— (589)— (716)— (716)— 
Net income (loss) available to common shareholders$5,249 $(15,330)$5,249 $(15,330)$6,155 $(35,865)$6,155 $(35,865)
Basic Weighted-Average Shares Outstanding17,68816,27217,68816,27217,04416,20517,044 16,205
Dilutive effect of common stock options, ESPP, and performance stock units167133
Diluted Weighted-Average Shares Outstanding17,85516,27217,17716,205
Income (loss) per share$0.30 $(0.94)$0.29 $(0.94)$0.36 $(2.21)$0.36 $(2.21)

The number of anti-dilutive shares, which have been excluded from the computation of diluted earnings (loss) per share, was 2.7 million and 1.72.5 million for the three months ended June 30, 2022 and 2021 and was 2.6 million and 1.7 million for the six months ended June 30, 2022 and 2021, respectively.2023. For the three and six months ended June 30, 2022, and 2021, all potentially dilutive shares were anti-dilutive and excluded from the calculation of diluted loss per share because we recognized a net loss.

8.

INVENTORIES

7.    INVENTORIES
Inventories consist of the following as of:

(in thousands)June 30,
2023
December 31,
2022
Raw materials$67,019 $67,726 
Packaging materials8,079 7,720 
Work-in-progress3,258 1,889 
Finished goods25,967 28,020 
Inventories$104,323 $105,355 
20


June 30, 

December 31, 

(in thousands)

    

2022

    

2021

 

Raw materials

$

59,176

$

51,350

Packaging materials

 

6,414

 

5,475

Work-in-progress

 

879

 

652

Finished goods

 

33,936

 

31,969

 

100,405

 

89,446

Reserve for excess/obsolete inventories

 

(7,860)

 

(7,753)

Inventories, net

$

92,545

$

81,693

Vendor Concentration

We source the raw materials for our products, including active pharmaceutical ingredients (“API”), from both domestic and international suppliers. Generally, only a single source of API is qualified for use in each product due to the cost and time required to validate a second source of supply. As a result, we are dependent upon our current vendors to reliably supply the API required for on-going product manufacturing. During the three and six months ended June 30, 2022, we purchased approximately 18% and 17%2023, no single vendor represented more than 10% of our inventory from one supplier, respectively. As of June 30, 2022, our amount payable to this supplier was $6.3 million.purchases. During the three and six months ended June 30, 2021, no single2022, one vendor represented more than 10%18% and 17% of inventory purchases.purchases, respectively.

9.

GOODWILL AND INTANGIBLE ASSETS

8.    GOODWILL AND INTANGIBLE ASSETS
Goodwill

As a result of our 2013 merger with BioSante Pharmaceuticals, Inc. (“BioSante”), we recorded goodwill of $1.8 million. As a result of our acquisition of WellSpring Pharma Services Inc., we recorded additional goodwill of $1.7 million in 2018. From our acquisition of Novitium in 2021, we recorded goodwill of $24.6 million. We have two operating segments, which are the same as our two reporting units, Generics, Established Brands, and Other reporting unit and the Rare Disease reporting unit. All of the goodwill is recorded in our Generics, Established Brands, and Other reporting unit.
We assess the recoverability of the carrying value of goodwill and other indefinite-lived intangible assets as of October 31st of each year, and whenever events occur or circumstances change that would, more likely than not, reduce the fair value of our reporting unit below its carrying value. There have been no events or changes in circumstances that would have reduced the fair value of our reporting unit below its carrying value during the three and six months ended June 30, 2022. NaN2023. No impairment losses were recognized during the three and six months ended June 30, 20222023 and 2021.

2022.

22

Intangible Assets

The components of net definite-lived intangible assets and net indefinite-lived intangible assets other than goodwill are as follows:

June 30, 2023December 31, 2022Remaining Weighted Average
Amortization
Period(1)
(in thousands)Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
Definite-Lived Intangible Assets:
Acquired ANDAs intangible assets$200,191 $(87,653)$195,862 $(75,606)5.5 years
NDAs and product rights242,372 (173,524)242,372 (162,188)3.4 years
Marketing and distribution rights17,157 (13,790)17,157 (13,309)3.5 years
Non-compete agreement624 (624)624 (602)— years
Customer relationships24,900 (5,929)24,900 (4,150)5.3 years
Total Definite-Lived Intangible Assets485,244 (281,520)480,915 (255,855)4.7 years
Indefinite-Lived Intangible Assets:
In process research and development26,575 — 26,575 — Indefinite
Total Intangible Assets, net$511,819 $(281,520)$507,490 $(255,855)
(1)

June 30, 2022

December 31, 2021

Weighted Average

Gross Carrying  

Accumulated

Gross Carrying

Accumulated

Amortization

(in thousands)

  

Amount

  

Amortization

  

Amount

  

Amortization

  

Period

Definite-Lived Intangible Assets:

Acquired ANDA intangible assets

$

168,377

$

(64,128)

$

168,536

$

(54,079)

 

8.5

years

NDAs and product rights

 

242,372

 

(150,853)

 

242,372

 

(138,835)

 

9.9

years

Marketing and distribution rights

 

17,157

 

(12,828)

 

17,157

 

(12,347)

 

5.5

years

Non-compete agreement

 

624

 

(557)

 

624

 

(513)

 

7.0

years

Customer relationships

24,900

(2,371)

24,900

(593)

7.0

years

Indefinite-Lived Intangible Assets:

In process research and development

46,900

46,900

Indefinite

Total Intangible Assets, net

$

500,330

$

(230,737)

$

500,489

$

(206,367)

9.0

years

Weighted average amortization period as of June 30, 2023.

The definite-lived Abbreviated New Drug Applications (“ANDAs”), New Drug Applications (“NDAs”) and product rights, marketing and distribution rights, customer relationships, and non-compete agreement are stated at cost, net of amortization, and generally amortized over their remaining estimated useful lives, ranging from seven to 10 years, based on the straight-line method. In the case of certain NDANDAs and product rights assets, we use an accelerated amortization method to better match the anticipated economic benefits expected to be provided. Our indefinite-lived intangible assets other than goodwill include in-process research and development (“IPR&D”) projects. IPR&D intangible assets represent the fair value of technology acquired in a business combination for which the technology projects are incomplete but have substance. When an IPR&D project is completed (generally upon receipt of regulatory approval), the asset is then accounted for as a definite-lived intangible asset.

21


Amortization expense was $11.9$12.8 million and $10.1$11.9 million for the three months ended June 30, 20222023 and 2021,2022, respectively. Amortization expense was $24.4$25.7 million and $19.7$24.4 million for the six months ended June 30, 2023 and 2022, and 2021, respectively.

We test for impairment of definite-lived intangible assets and indefinite-lived intangible assets when events or circumstances indicate that the carrying value of the assets may not be recoverable. InNo such triggering events were identified in the three and six months ended June 30, 2022, we recognized a full impairment of a definite-lived ANDA asset with a remaining carrying value of $0.1 million.2023. No such triggering events were identified during the three and six months ended June 30, 2021 and2023 therefore 0no impairment loss was recognized in the three and six months ended June 30, 2021.

2023. During three and six months ended June 30, 2022 we recognized an impairment of $0.1 million in relation to ANDA asset.

Expected future amortization expense for definite-lived intangible assets is as follows:

(in thousands)

    

2022 (remainder of the year)

$

24,693

2023

 

50,770

2024

 

49,974

2025

 

47,870

2026

 

34,551

2027 and thereafter

 

61,735

Total

$

269,593

Expected amortization expense is an estimate. Actual amounts of amortization expense may differ due to timing of regulatory approvals related to IPR&D assets, additional intangible assets acquired, impairment of intangible assets, and other events.

23

(in thousands)
2023 (remainder of the year)$25,952 
202448,950 
202545,715 
202632,396 
202723,485 
2028 and thereafter27,226 
Total$203,724 

Table of Contents

9.    MEZZANINE AND STOCKHOLDERS’ EQUITY

10.

MEZZANINE AND STOCKHOLDERS’ EQUITY

Stockholders’ Equity

Authorized shares

We are authorized to issue up to 33.3 million shares of common stock with a par value of $0.0001 per share, 0.8 million shares of class C special stock with a par value of $0.0001 per share, and 1.7 million shares of undesignated preferred stock with a par value of $0.0001 per share at June 30, 2022.

2023.

There were 17.620.5 million and 17.420.3 million shares of common stock issued and outstanding as of June 30, 20222023, respectively, and 16.917.6 million and 17.5 million shares of common stock issued and outstanding as of December 31, 2021. During 2021, we issued 1.5 million shares related to a public offering of our common stock and 2.5 million shares as consideration in connection with the acquisition of Novitium.

2022, respectively.

There were 11 thousand shares of class C special stock issued and outstanding as of June 30, 20222023 and December 31, 2021.2022. Each share of class C special stock entitles its holder to one vote per share. Each share of class C special stock is exchangeable, at the option of the holder, for one share of our common stock, at an exchange price of $90.00 per share, subject to adjustment upon certain capitalization events. Holders of class C special stock are not entitled to receive dividends or to participate in the distribution of our assets if we were to liquidate, dissolve, or wind-up the Company. The holders of class C special stock have no cumulative voting, preemptive, subscription, redemption, or sinking fund rights.

Mezzanine Equity

PIPE Shares

Concurrently with the execution of the Merger Agreement, and as financing for a portion of the acquisition, on March 8, 2021, we entered into an Equity Commitment and Investment Agreement with Ampersand 2020 Limited Partnership (the “PIPE Investor”), pursuant to which we agreed to issue and sell to the PIPE Investor, and the PIPE Investor agreed to purchase, 25,000 shares of our Series A Convertible Preferred Stock (the “PIPE Shares”), for a purchase price of $1,000 per share and an aggregate purchase price of $25.0 million. This agreement closed and the 25,000 PIPE Shares were sold and issued for $25.0 million on November 19, 2021. The PIPE Shares are classified as mezzanine equity because the shares are mandatorily redeemable for cash upon a change in control, an event that is not solely in our control. We incurred $0.2 million in issuance costs associated with the transaction.

22


The PIPE Shares accrue dividends at 6.50% per year on a cumulative basis, payable in cash or in-kind, and will also participate, on a pro-rata basis, in any dividends that may be declared with respect to our common stock. The PIPE Shares are convertible into our common shares at the conversion price of $41.47 (i) beginning two years after their issuance date, at the election of ANI (in which case the PIPE Investor must convert all of the PIPE Shares), if the volume-weighted average price of our common stock for any 20 trading days out of 30 consecutive trading days exceeds 170% of the conversion price, and (ii) at any time after issuance, at the election of the PIPE Investor. As of June 30, 2022,2023, the PIPE shares are currently convertible into a maximum of 602,901 shares of our common stock.

In case of a liquidation event, the holder of the PIPE Shares will be entitled to receive, in preference to holders of our common stock, the greater of (i) the PIPE Shares’ purchase price plus any accrued and unpaid dividends thereon and (ii) the amount the holder of the PIPE Shares would have received in the liquidation event if it had converted its PIPE Shares into our common stock. The PIPE Shares will have voting rights, voting as one series with our common stock, on as-converted basis, and will have separate voting rights on any (i) amendment to the Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (the “Certificate”) that adversely amends and relates solely to the terms of the PIPE Shares and (ii) issuance of additional Series A convertible preferred stock. In case of a change of control of ANI, the PIPE Shares will be redeemed at the greater of (i) the PIPE Shares’ purchase price plus any accrued and unpaid dividends thereon and (ii) the change of control

24

transaction consideration that the holder of the PIPE Shares would have received if it had converted into our common stock.

There were 25,000 shares of Series A convertible preferred stock outstanding as of June 30, 2022.

11.

STOCK-BASED COMPENSATION

2023.

10.    STOCK-BASED COMPENSATION
Employee Stock Purchase Plan

In July 2016, we commenced administration of the ANI Pharmaceuticals, Inc. 2016 Employee Stock Purchase Plan. As of June 30, 2022,2023, we had 0.20.1 million shares of common stock available under the ESPP. Under the ESPP, participants can purchase shares of our stock at a 15% discount.

The following table summarizes ESPP expense incurred under the 2016 Employee Stock Purchase Plan and included in our accompanying unaudited interim condensed consolidated statements of operations:

(in thousands)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2022

    

2021

    

2022

    

2021

    

Cost of sales

$

19

$

4

$

29

$

8

Research and development

 

15

 

6

 

22

 

11

Selling, general, and administrative

 

39

 

23

 

60

 

46

$

73

$

33

$

111

$

65

(in thousands)Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Cost of sales$18 $19 $30 $29 
Research and development12 15 19 22 
Selling, general, and administrative70 39 143 60 
$100 $73 $192 $111 
Stock Incentive Plan

Equity-based service awards are granted under the ANI Pharmaceuticals, Inc. Amended and Restated 2022 Stock Incentive Plan (the “2022 Plan”), which was approved by our stockholders at the 2022 Annual Meeting of Stockholders (the “Annual Meeting”) held on April 27, 2022. Prior to this approval, we had been granting equity-based incentive awards underDuring our Sixth Amended and Restated 2008 Stock Incentive2023 Annual Meeting of Stockholders held on May 23, 2023, our stockholders approved an amendment of the 2022 Plan (the “Existing Plan”2023 Stock Plan Amendment). The 2023 Stock Plan Amendment increased the shares authorized for issuance under the 2022 Plan was amended to, among other things, increase the number of shares reserved for issuance thereunder by 1,150,000750,000 additional shares. As of June 30, 2022,2023, 1.1 million shares of our common stock were available for issuance under the Existing2022 Plan.

Stock Options: Outstanding stock options granted to employees and consultants generally vest over a period of four years and have 10-year contractual terms. Outstanding stock options granted to non-employee directors generally vest over a period of one to four years and have 10-year contractual terms. Upon exercise of an option, we issue new shares of our common stock or issue shares from treasury stock.
23


From time to time, we may grant stock options to employees through an inducement grant outside of our 2022 Plan to induce prospective employees to accept employment with us (the “Inducement Grants”). The options are granted at an exercise price equal to the fair market value of a share of our common stock on the respective grant date and are generally exercisable in four equal annual installments beginning on the first anniversary of the respective grant date. The grants are made pursuant to inducement grants outside of our stockholder approved equity plan as permitted under the Nasdaq Stock Market listing rules.

Restricted Stock Awards: Restricted stock awards (“RSAs”) granted to employees generally vest over a period of four years. RSAs granted to non-officer directors generally vest over a period of one year.
Shares of our common stock delivered to employees and directors will be unrestricted upon vesting. During the vesting period, the recipient of the RSAs has full voting rights as a stockholder and would receive dividends, if declared, even though the restricted stock remains subject to transfer restrictions and will generally be forfeited upon termination of the officer prior to vesting. The fair value of each RSA is based on the market value of our stock on the date of grant.
Performance-Based Restricted Stock Units: Awards may also be issued in the form of Performance Stock Units (“PSUs”). PSUs represent the right to receive an amount of cash, a number of shares of our common stock or a combination of both, contingent upon the achievement of specified performance objectives during a specified performance period. PSUs granted to date vest over a three-year performance period. On February 28, 2023, as part of our equity compensation program, we granted PSUs to certain executives. Of these PSUs, 50% were market performance-based restricted stock units (“MPRSUs”), vesting of which is contingent upon the Company meeting certain total shareholder return (“TSR”) levels as compared to a select peer group over the over three years starting January 1, 2023. The MPRSUs are also subject to the recipient’s continued employment or service through December 31, 2025. The MPRSUs cliff vest at the end of the three-year period and have a maximum potential to vest at 200% (85,099 shares) based on TSR performance. The related share-based compensation expense is determined based on the estimated fair value of the underlying shares on the date of grant and is recognized straight-line over the vesting term. The estimated grant date fair value per share of the MPRSUs was $68.65 and was calculated using a Monte Carlo simulation model. These MPRSUs are included at 100% of the estimate number of shares at the end of the three-year performance period and are reflected under “Granted” in the table below.
The other 50% of the PSUs were performance based restricted stock units (“PRSUs”), vesting of which is contingent upon the Company meeting certain adjusted non-GAAP year-on-year EBITDA growth rates over the over three years starting January 1, 2023. The PRSUs are also subject to the recipient’s continued employment or service through December 31, 2025. The PRSUs cliff vest at the end of the three-year period and have a maximum potential to vest at 200% (85,099 shares) based on adjusted non-GAAP year-on-year EBITDA growth rates. The related share-based compensation expense is determined based on the estimated fair value of the underlying shares on the date of grant and is recognized straight-line over the vesting term. We analyzed progress on the performance goals to assess the likelihood of achievement. The estimated grant date fair value per share of the PRSUs was $41.84 based on the closing price of the stock on the date of grant. These PRSUs are included at 100% of the estimated number of shares at the end of the three-year performance period and are reflected under “Granted” in the table below.
The following table summarizes stock-based compensation expense incurred under the 2022 Plan and Inducement Grants included in our accompanying unaudited interim condensed consolidated statements of operations:

(in thousands)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2022

    

2021

    

2022

    

2021

    

Cost of sales

$

124

$

2

$

259

$

2

Research and development

 

180

 

149

 

345

 

263

Selling, general, and administrative

 

3,379

 

2,660

 

6,278

 

4,383

$

3,683

$

2,811

$

6,882

$

4,648

25

(in thousands)Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Cost of sales$170 $124 $309 $259 
Research and development213 180 413 345 
Selling, general, and administrative4,766 3,379 8,673 6,278 
$5,149 $3,683 $9,395 $6,882 
24


A summary of stock option, RSA, and restricted stockPSU activity under the 2022 Plan and Inducement Grants during the six months ended June 30, 20222023 and 20212022 is presented below:

(in thousands)OptionsInducement GrantsPSUsRSAs
Outstanding at December 31, 2021747241707
Granted36669
Options Exercised/RSAs Vested(1)(209)(1)
Forfeited(37)(24)
Expired
Outstanding at June 30, 20227452411,143
Outstanding at December 31, 20229072411,141
Granted385624
Options Exercised/RSAs Vested(26)(338)(2)
Forfeited(24)(46)
Expired
Outstanding at June 30, 2023860241851,381

(1)

(in thousands)

Options

Inducement Grants

RSAs

Outstanding at December 31, 2020

 

756

180

352

Granted

 

84

61

457

Options Exercised/RSAs Vested

 

(5)

(111)

 (1)

Forfeited

 

(58)

(73)

Expired

 

Outstanding at June 30, 2021

 

777

241

625

Outstanding at December 31, 2021

 

747

241

707

Granted

 

36

669

Options Exercised/RSAs Vested

 

(1)

(209)

 (2)

Forfeited

 

(37)

(24)

Expired

 

Outstanding at June 30, 2022

 

745

241

1,143

Includes 56 thousand shares purchased from employees to cover employee income taxes related to income earned upon vesting of restricted stock. The shares purchased are held in treasury and the $1.6 million total purchase price for the shares is included in Treasury stock in our accompanying unaudited interim condensed consolidated balance sheets.
(2)Includes 99 thousand shares purchased from employees to cover employee income taxes related to income earned upon vesting of restricted stock. The shares purchased are held in treasury and the $4.1 million total purchase price for the shares is included in Treasury stock in our accompanying unaudited interim condensed consolidated balance sheets.

11.    INCOME TAXES
(1)Includes 25 thousand shares purchased from employees to cover employee income taxes related to income earned upon vesting of restricted stock. The shares purchased are held in treasury and the $0.8 million total purchase price for the shares is included in Treasury stock in our accompanying unaudited interim condensed consolidated balance sheets.
(2)Includes 56 thousand shares purchased from employees to cover employee income taxes related to income earned upon vesting of restricted stock. The shares purchased are held in treasury and the $1.6 million total purchase price for the shares is included in Treasury stock in our accompanying unaudited interim condensed consolidated balance sheets.

12.

INCOME TAXES

We use the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted.

The measurement of a deferred tax asset is reduced, if necessary, by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. As of June 30, 2022,2023, we had provided a valuation allowance against consolidated net deferred tax assets of $0.4 million, related solely to deferred tax assets for net operating loss carryforwards in certain U.S. state jurisdictions.

We use a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. We have not identified any uncertain income tax positions that could have a material impact on the consolidated financial statements. We recognize interest and penalties accrued on any unrecognized tax exposures as a component of income tax expense; we did not have any such amounts accrued as of June 30, 20222023 and December 31, 2021.2022. We are subject to taxation in various U.S. jurisdictions, Canada, and India and all of our income tax returns remain subject to examination by tax authorities due to the availability of NOL carryforwards.

25


For interim periods, we recognize an income tax provision/(benefit)benefit (provision) based on our estimated annual effective tax rate, calculated on a worldwide consolidated basis, expected for the entire year. The interim annual estimated effective tax rate is based on the statutory tax rates then in effect, as adjusted for estimated changes in temporary and

26

estimated permanent differences, and excludes certain discrete items whose tax effect, when material, isare recognized in the interim period in which they occur. These changes in temporary differences, permanent differences, and discrete items result in variances to the effective tax rate from period to period. We also have elected to exclude the impacts from significant pre-tax non-recognized subsequent events from our interim estimated annual effective rate until the period in which they occur. Our estimated annual effective tax rate changes throughout the year as our on-going estimates of pre-tax income, changes in temporary differences, and permanent differences are revised, and as discrete items occur. Global Intangible Low-Taxed Income (“GILTI”), as defined in the Tax Cuts and Jobs Act of 2017, generated from our Canadian and Indian operations is subject to U.S. taxes, with certain defined exemptions, thresholds and credits. For financial reporting purposes we have elected to treat GILTI inclusions as a period cost.

For the three months ended June 30, 2023, the Company recognized an income tax benefit of $1.0 million. The Company's effective tax rate was (19.0)% for the three months ended June 30, 2023. The effective tax rate differed from the federal statutory rate of 21% primarily due to the recognition of the U.S. federal research and development credit, permanent differences, and discrete tax benefit primarily related to remeasurement of its gross deferred assets due to change in state deferred effective tax rate.
For the three months ended June 30, 2022, we recognized an income tax benefit of $3.9 million. The income tax benefit resulted from applying an estimated annual worldwide effective tax benefit rate of 20.7% to pre-tax consolidated loss of $18.8 million reported during the period, as well as the net effects of certain discrete items occurring which impact our income tax provision in the period in which they occur.period. There were no material discrete items occurring during the three months ended June 30, 2022.

For the threesix months ended June 30, 2021, we2023, the Company recognized an income tax benefit of $4.0$0.3 million. The income tax benefit resulted from applying an estimated annual worldwideCompany's effective tax benefit rate of 22.3% to pre-tax consolidated loss of $18.2 million reported duringwas (3.7)% for the period, reduced by the net effects of certain discrete items occurring which impact our income tax provision in the period in which they occur. There were no material discrete items occurring during the threesix months ended June 30, 2021.

2023. The effective tax rate differed from the federal statutory rate of 21% primarily due to the recognition of the U.S. federal research and development credit, permanent differences, and discrete tax benefit primarily related to remeasurement of gross deferred assets due to change in state deferred effective tax rate.

For the six months ended June 30, 2022, we recognized an income tax benefit of $9.7 million. The income tax benefit resulted from applying an estimated annual worldwide effective tax benefit rate of 21.6% to pre-tax consolidated loss of $44.7 million reported during the period, as well as the net effects of certain discrete items occurring which impact our income tax provision in the period in which they occur.period. There were no material discrete items occurring during the six months ended June 30, 2022.

ForWe expect that recent tax law changes contained in Inflation Reduction Act and the six months ended June 30, 2021,Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (“CHIPS Act”) will not have a material impact on the provision for income taxes.
12.    COMMITMENTS AND CONTINGENCIES
Operating Leases
In April 2023, we recognizedentered into an income tax benefitagreement to lease warehousing space in East Windsor, New Jersey. The lease has a term of $4.1 million.five years. The income tax benefit resulted from applying an estimated annual worldwide effective tax benefit rate of 22.4% to pre-tax consolidated loss of $18.1 million reported during the period, reduced by the net effects of certain discrete items occurring which impact our income tax provision in the period in which they occur. There were no material discrete items occurring during the six months ended June 30, 2021.

13.

COMMITMENTS AND CONTINGENCIES

Operating Leases

All our existing leases as of June 30, 2022 arelease was classified as an operating leases. As of June 30, 2022, we had 13 material operating leases for facilities and office equipment with remaining terms expiring from 2022 through 2027 and a weighted average remaining lease term of 2.9 years. Many of our existing leases have fair value renewal options, none of which are considered certain of being exercised or included in the minimum lease term. Discount rates used in the calculation of our lease liability ranged between 3.99% and 8.95%. Current lease liability is included in accrued expenses and other in the accompanying unaudited interim condensed consolidated balance sheets. Non-current lease liability is included in derivatives and other non-current liabilities in the accompanying unaudited interim condensed consolidated balance sheets.

lease.

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Rent expense for the three and six months ended June 30, 2022 and 2021 consisted of the following:

    

Three Months Ended June 30, 

    

Six Months Ended June 30, 

(in thousands)

    

2022

    

2021

    

2022

2021

Operating lease costs

$

143

$

43

$

269

$

92

Variable lease costs

 

54

 

13

 

120

 

21

Total lease costs

$

197

$

56

$

389

$

113

A maturity analysis of our operating leases follows:

(in thousands)

    

Future payments:

2022

$

251

2023

 

482

2024

 

468

2025

 

248

2026 and thereafter

 

126

Total

$

1,575

Discount

(163)

Lease liability

1,412

Current lease liability

(413)

Non-current lease liability

$

999

Government Regulation

Our products and facilities are subject to regulation by a number of federal and state governmental agencies, such as the Drug Enforcement Administration (“DEA”), the Food and Drug Administration (“FDA”), the Centers for Medicare and Medicaid Services (“CMS”), Health Canada, the Central Drugs Standard Control Organization (“CDSCO”), The Narcotics Control Bureau (“NCB”), and India’s Ministry of Health and Family Welfare (“MoHFW”). The FDA, in particular, maintains oversight of the formulation, manufacture, distribution, packaging, and labeling of all of our products. The DEA, Health Canada, and NCB maintain oversight over our products that are considered controlled substances.

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Unapproved Products

Two of our products, Esterified Estrogen with Methyltestosterone (“EEMT”) and Opium Tincture, are marketed without approved NDAs or ANDAs.ANDAs. If the FDA took enforcement action against such customer, the customer may be required to seek FDA approval for the group of products or withdraw them from the market. During the three months ended June 30, 20222023 and 2021,2022, net revenues for these products totaled $2.9$3.5 million and $4.2$2.9 million, respectively. During the six months ended June 30, 20222023 and 2021,2022, net revenues for these products totaled $7.2 million and $6.9 million, and $8.0 million, respectively.

In addition, one group of products that we manufacture on behalf of a contract customer is marketed by that customer without an approved NDA. If the FDA took enforcement action against such customer, the customer may be required to seek FDA approval for the group of products or withdraw them from the market. Our contract manufacturing revenues for the group of unapproved products for the three months ended June 30, 2023 and 2022 and 2021 were $0.4$0.5 million and $0.6$0.4 million, respectively. Our contract manufacturing revenues for the group of unapproved products for the six months ended June 30, 20222023 and 20212022 were $1.1 million and $1.4 million, respectively.

million.

Legal proceedings

We are involved, and from time to time may become involved, in various disputes, governmental and/or regulatory inquiries, investigations, government reimbursement related actions and litigation. These matters are complex and subject to significant uncertainties. As such,Due to the inherent unpredictability of legal matters, including litigation, governmental and regulatory matters, particularly where the damages sought are substantial or indeterminate or when the proceedings, investigations or inquiries are in the early stages, we cannot accurately predict the outcome, or the effects of the legal proceedings described below. While we believe that we have valid claims and/or defenses in the litigation and other

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matters described below, litigation is inherently unpredictable, and the outcome of the proceedings could result in losses, including substantial damages, fines, civil or criminal penalties and injunctive or administrative remedies. We intend to vigorously prosecute and/or defend these matters, as appropriate; however, from time to time, we may settle or otherwise resolve these matters on terms and conditions that we believe are in our best interests. Resolution of any or all claims, investigations, and legal proceedings, individually or in the aggregate, could have a material adverse effect on our results of operations and/or cash flows in any given accounting period or on our overall financial condition.

Some of these matters with which we are involved are described below and in our 2022 Form 10-K, and unless otherwise disclosed, we are unable to predict the outcome of the matter or to provide an estimate of the range of reasonably possible material losses. We record accruals for loss contingencies to the extent we conclude it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

From time to time, we are also involved in other pending proceedings for which, in our opinion based upon facts and circumstances known at the time, either the likelihood of loss is remote or any reasonably possible loss associated with the resolution of such proceedings is not expected to be material to our results, and therefore remain undisclosed. If and when any reasonably possible losses associated with the resolution of such other pending proceedings, in our opinion, become material, we will disclose such matters.

Furthermore, like many pharmaceutical manufacturers, we are periodically exposed to product liability claims. The prevalence of these claims could limit our coverage under future insurance policies or cause those policies to become more expensive, which could harm our business, financial condition, and operating results. Recent trends in the product liability and director and officer insurance markets is to exclude matters related to certain classes of drugs. Our policies have been subject to such exclusions which place further potential risk of financial loss on us.

Legal fees for litigation-related matters are expensed as incurred and included in the condensed consolidated statements of operations under the selling, general, and administrative expense line item.

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Commercial Litigation

In November of 2017, we were served with a complaint filed by Arbor Pharmaceuticals, LLC, in the United States District Court for the District of Minnesota. The complaint alleged false advertising and unfair competition in violation of Section 43(a) of the Lanham Act, Section 1125(a) of Title 15 of the United States Code, and Minnesota State law, under the premise that we sold an unapproved Erythromycin Ethylsuccinate (“EES”) product during the period between September 27, 2016 and November 2, 2018. The complaint sought a trial by jury and monetary damages (inclusive of actual and consequential damages, treble damages, disgorgement of ANI profits, and legal fees) of an unspecified amount. Discovery in this action closed on March 31, 2019 and trial was scheduled to commence on August 25, 2021. On August 3, 2021, the Company entered into a Settlement Agreement with Arbor Pharmaceuticals, LLC to resolve all claims related to Civil Action 17-4910, Arbor Pharmaceuticals, LLC (“Arbor”) v. ANI Pharmaceuticals, Inc., which was pending trial in the United States District Court for the District of Minnesota. Under the terms of the agreement, ANI paid Arbor $8.4 million and Arbor dismissed the action with prejudice. Neither party admitted wrongdoing in reaching this settlement. The Company paid the settlement from cash on the balance sheet.

On December 3, 2020, class action complaints were filed against the Company on behalf of putative classes of direct and indirect purchasers of the drug Bystolic. On December 23, 2020, six individual purchasers of Bystolic, CVS, Rite Aid, Walgreen, Kroger, Albertsons, and H-E-B, filed complaints against the Company. On March 15, 2021, the plaintiffs in these actions filed amended complaints. All amended complaints arewere substantively identical. The plaintiffs in these actions allegealleged that, beginning in 2012, Forest Laboratories, the manufacturer of Bystolic, entered into anticompetitive agreements when settling patent litigation related to Bystolic with seven potential manufacturers of a generic version of Bystolic: Hetero, Torrent, Alkem/Indchemie, Glenmark, Amerigen, Watson, and various of their corporate parents, successors, subsidiaries, and affiliates. ANI itself was not a party to patent litigation with Forest concerning Bystolic and did not settle patent litigation with Forest. The plaintiffs named the Company as a defendant based on the Company’s January 8, 2020 Asset Purchase Agreement with

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Amerigen.the 2020 Asset Purchase Agreement, Amerigen agreed to indemnify ANI for certain liabilities relating to Bystolic, including liabilities that arose prior to closing of the asset purchase. The complaints alleged that the 2013 patent litigation settlement agreement between Forest and Amerigen violated federal and state antitrust laws and state consumer protection laws by delaying the market entry of generic versions of Bystolic. Plaintiffs alleged they paid higher prices as a result of delayed generic competition. Plaintiffs sought damages, trebled or otherwise multiplied under applicable law, injunctive relief, litigation costs and attorneys’ fees. The complaints did not specify the amount of damages sought from the Company or other defendants and the CompanyCompany. at this early stage of the litigation cannot reasonably estimate the potential damages that the plaintiffs will seek. The cases have beenwere consolidated in the United States District Court for the Southern District of New York as In re Bystolic Antitrust Litigation, Case No. 20-cv-005735 (LJL). On April 23, 2021, the Company and other defendants filed motions to dismiss the amended complaints. On January 24, 2022, the court dismissed all claims brought by the plaintiffs without prejudice. The court granted the plaintiffs until February 22, 2022 to file amended complaints, which were filed in federal court in the Southern District of New York, on that date. The newly amended complaints containcontained substantially similar claims. On April 19, 2022, the Company and other defendants filed motions to dismiss the newly amended complaints. On May 23, 2022, the plaintiffs filed oppositions to the motions to dismiss and, on June 24, 2022, the Company and other defendants filed replies to those oppositions. TheOn February 21, 2023, the Company and the defendants’ motions to dismiss are now fully briefedall actions were granted with prejudice. Plaintiffs have filed notices of appeal in the Second Circuit. On June 12, 2023, plaintiffs-appellants filed their brief in the Second Circuit and pending with the court. The Company disputesdefendants-appellees filed their brief on July 17, 2023. ANI continues to dispute any liability in these matters.

this matter.

On March 24, 2021, Azurity Pharmaceuticals, Inc. (“Azurity”) filed a complaint in the United States District Court for the District of Minnesota against ANI, Pharmaceuticals, Inc., asserting that ANI’s vancomycin hydrochloride oral solution drug product infringes U.S. Patent No. 10,688,046. The complaint sought injunctive relief, damages, including lost profits and/or royalty, treble damages, and attorneys’ fee and costs. On February 15, 2022, the Company entered into a settlement agreement with Azurity to resolve all claims related to this action. Under the terms of the agreement, Azurity granted ANI a non-exclusive, non-transferable, non-sublicensable, royalty-bearing license under its Patentspatents to sell ANI product in the United States and dismissed the action with prejudice. In exchange, weANI paid Azurity $1.9$1.9 million of royalties from past sales and we will pay Azurity a royalty equal to 20% of gross margin of sales of the ANI product for a contractually defined term. We paid the settlement from cash on hand and the $1.9 million charge was recorded as cost of sales (excluding depreciation and amortization) on the consolidated statement of operations for the year ended December 31, 2021.

On April 1, 2021, United Therapeutics Corp. and Supernus Pharmaceuticals, Inc. (“UTC/Supernus”) filed a complaint in the United States District Court for the District of Delaware against ANI, Pharmaceuticals, Inc., asserting that ANI’s proposed Treprostinil extended release drug product, which is subject to ANI’s Abbreviated New Drug Application No. 215667, infringes U.S. Patent Nos. 7,417,070, 7,544,713, 8,252,839, 8,349,892, 8,410,169, 8,747,897, 9,050,311, 9,278,901, 9,393,203, 9,422,223, 9,593,066 and 9,604,901 (“the Asserted Patents”). The complaint seeks injunctive relief, attorneys' fee and costs. ANI filed its answer and counterclaims on May 28, 2021, denying UTC/Supernus’ allegations and seeking declaratory judgment that ANI has not infringed any valid and enforceable claim of the Asserted Patents, that the Asserted Patents are invalid, and an award of attorneys’ fees and costs. On May 26, 2022, the parties’ respective claims and counterclaims were dismissed pursuant to a confidential settlement agreement.


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Industry
On October 3, 2022, Azurity filed a complaint in the United States District Court for the District of New Jersey against Novitium, seeking a declaratory judgment that Novitium’s manufacture, use, sale, importation and/or offer to sell Bionpharma Inc.’s (“Bionpharma”) enalapril maleate oral solution drug product (the “Product”) would infringe U.S. Patents Nos. 11,040,023 and 11,141,405 (the “Novitium Action”). The complaint seeks injunctive relief, and an award of Azurity’s costs and expenses. On October 12, 2022, Bionpharma filed a motion in the New Jersey court to intervene on Novitium’s behalf in the litigation and on October 14, 2022, Novitium and Bionpharma jointly moved to transfer venue to the District of Delaware. Transfer was granted on January 20, 2023. On March 27, 2023, the transferred Novitium Action (assigned Delaware Civil Action No. 23-163-MSG) was consolidated with the Delaware Third Wave Suits against Bionpharma (Civil Action Nos. 21-1286-MSG, 21-1455-MSG), which include Azurity’s infringement claims against Bionpharma involving the same patents asserted in the Novitium Action, as well as Bionpharma’s antitrust claims against Azurity. Trial is scheduled for June 17, 2024 and the parties are currently proceeding through fact discovery. Bionpharma has agreed to indemnify Novitium under the terms of its manufacturing and supply agreement for any damages, costs, and expenses relating to actual or alleged infringement of intellectual property rights or sale of the Product by Bionpharma. ANI and Novitium dispute any liability in this matter.
Ranitidine Related Litigation
State of New Mexico Litigation

. In July 2020, ANI and Novitium were served with a complaint brought in the First Judicial Court, County of Santa Fe, State of New Mexico by the Office of the Attorney General of the State of New Mexico against manufacturers and sellers of ranitidine products. The complaint asserts a public nuisance claim and a negligence claim against the generic ranitidine manufacturer defendants, including ANI and Novitium. The public nuisance claim asserts that the widespread sale of ranitidine products in the state created a public nuisance that requires a state-wide medical monitoring program of New Mexico residents for the development of colorectal cancer, stomach cancer, gastrointestinal disorders and liver disease. As damages, New Mexico asks that the defendants fund this medical monitoring program. The negligence claims assert that the defendants were negligent in selling the product, essentially alleging that it was unreasonable to have the product on the market. With respect to that claim, New Mexico asserts that it paid for ranitidine products through state-funded insurance and health-care programs. On December 15, 2020, the case was removed to federal court and transferred to the In re Zantac multidistrict litigation (“MDL”) pending in the United States District Court for the Southern District of Florida. New Mexico moved for

30

remand to state court. The MDL court granted the remand motion on February 25, 2021. On April 16, 2021, New Mexico filed an amended complaint in the New Mexico First Judicial District Court in Santa Fe County. It did not name ANI in the amended complaint, effectively voluntarily dismissing ANI from the action. Novitium is named as a Defendant in the amended complaint. According to Novitium’s records, Novitium sold approximately 42 bottles ofdid not ship any ranitidine indirectly intoproduct to New Mexico, and received no funds from any state funded health care plan or Medicaid. The Defendants filed a motion to dismiss the claims asserted in the New Mexico litigation based primarily on preemption. The motion was denied in August 2021.

In December 2020, the City of Baltimore served ANI and Novitium with a complaint against manufacturers and sellers of ranitidine products. A motion for reconsideration was denied on September 22, 2022. The City of Baltimore complaint, which was filedcase is currently in the Circuit Court for Baltimore City, tracks the allegations of the New Mexico complaint. The Baltimore action was removed to federal court and transferred to the In re Zantac MDL on February 1, 2021. The City of Baltimore moved for remand, which was granted on April 1, 2021. The parties stipulated to allow the City of Baltimore to file an amended complaint in the Circuit Court of Maryland for Baltimore City in “due course,” without a specific filing deadline. On June 23, 2021, the City of Baltimore filed an amended complaint. The City of Baltimore did not name ANI in its amended complaint, effectively voluntarily dismissing ANI from the action. Novitium was named as a defendant in the amended complaint. Defendants in the Baltimore action filed a motion to dismiss on based primarily on preemption to which Novitium joined. The motion was granted as to all generic manufacturer defendants on January 28, 2022, and all claims against Novitium were dismissed with prejudice. The deadline for the City of Baltimore to file an appeal was February 28, 2022.

discovery. ANI and Novitium dispute any liability in these matters.

this matter.

Product Liability RelatedFederal Court Personal Injury Litigation

All manufacturers of the drug Reglan and its generic equivalent metoclopramide, including ANI, have faced allegations from plaintiffs in various states claiming bodily injuries as a result of ingestion of metoclopramide or its brand name, Reglan, prior to the FDA’s February 2009 Black Box warning requirement (“legacy claims”). All these original legacy claims were settled or closed out, including a series of claims in California that were resolved by coordinated proceeding and settlement. Our insurance company assumed the defense of the legacy claims and paid all losses in settlement of the California legacy claims. In March 2019, we were served with a lawsuit in the Superior Court of California, County of Riverside, adding us as a defendant in a complaint filed in July 2017 that is alleged not to have been part of the original settled legacy claims. This new claim was dismissed with prejudice in July 2021 and the matter is now closed.

In June 2020, ANI was served with a personal injury complaint in the case of Koepsel v. Boehringer Ingelheim Pharmaceuticals, et al., MDL No. 20-MD-2924, Case No. 9:20-cv-80882-RLR, filed in the United States District Court for Southern District of Florida, in which the plaintiff alleges that he developed kidney cancer in 2018 as a result of taking over the counter medication containing ranitidine. The Koepsel action was filed within anthe existing multidistrict litigationMDL concerning ranitidine-containing drugs pending in the Southern District of Florida, before Judge Robin L. Rosenberg, In re Zantac MDL, 20 MDL 2924. A Master Personal Injury Complaint (“MPIC”) in that MDL that was filed on June 22, 2020 also named ANI and Novitium as defendants. ANI was dismissed from the Koepsel case on August 21, 2020 and was dismissed from the MPIC on September 8, 2020. On December 31, 2020, after ANI was dismissed, the district court dismissed the MPIC claims against generic manufacturer defendants partially with prejudice and partially with leave to replead. The failure to warn and design defect claims were dismissed with prejudice on preemption grounds. An Amended Master Personal Injury ComplaintMPIC was filed on February 8, 2021, which did not name ANI but did name Novitium. By opinion dated July 8, 2021, the district court dismissed all claims against the generic manufacturer defendants with prejudice on preemption grounds. That decision is on appeal to the Eleventh Circuit Court of Appeals. In addition, by opinion and order dated December 6, 2022, the district court granted the brand manufacturer defendants’

Daubert

motion to exclude the plaintiffs’ expert testimony on general causation for the “designated cancers” that the plaintiffs’ leadership team claimed to be caused by ranitidine. The district court also granted the brand manufacturer defendants’ motion for summary judgment because the plaintiffs had failed to produce admissible primary evidence of general causation. The plaintiffs have appealed to the Eleventh Circuit Court of Appeals.

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ANI and Novitium were named in other individual personal injury complaints filed in the MDL 20 MD 2924 in which plaintiffs allege that they developed cancer after taking prescription and over the counter medication containing ranitidine. ANI was served with complaints in five of those additional cases: Cooper v. Boehringer Ingelheim Pharmaceuticals, et al., MDL No. 20-MD-2924, Case No. 9:20-cv-81130-RLR (served September 30, 2020),

31

Lineberry v. Amneal Pharmaceuticals, LLC, et al., MDL No. 20-MD-2924, Case No. 9:20-cv-81079-RLR (served August 20, 2020), Lovette v. Amneal Pharmaceuticals, LLC, et al., MDL No. 20-MD-2924, Case No. 9:20-cv-81040-RLR (served August 26, 2020), Hightower v. Pfizer, et al, MDL No. 20-MD-2924, Case No. 9-20-cv-82214-RLR (served December 16, 2020) and Bird v. Boehringer Ingelheim Pharmaceuticals, et al., MDL No. 20-MD-2924, Case No. 9-20-cv-80837-RLR (served December 30, 2020). We haveANI informed counsel for the plaintiffs that ANI did not sell an over the counter ranitidine product and sold a generic prescription ranitidine product for a limited two-month period of time, from July 2019 to September 2019. ANI’s product was voluntarily recalled in January 2020. Each of the plaintiffs in the five pending cases alleges a cancer diagnosis prior to the time that ANI sold ranitidine, and we have informally sought dismissal from these cases on that basis. ANI was voluntarily dismissed from the Cooper, Lineberry and Lovette actions on November 20, 2020. ANI was voluntarily dismissed2020, from the Bird action on March 15, 2021, and from the Hightower action on March 29, 2021.


Prior to the district court’s July 8, 2021 preemption decision, Novitium hashad been named in 155158 short form complaints filed by claimants in the MDL. Those complaints were effectively dismissed with prejudice with the MPIC on July 8, 2021. Counsel for the plaintiffs have been notified that Novitium did not sell an over the counter ranitidine product and sold a generic prescription ranitidine product for a limited period of time, from December 2018 until September 2019. Novitium’s product was voluntarily recalled in October 2019. Out of the 155158 short form complaints, approximately 111114 plaintiffs either were diagnosed with cancer before Novitium began manufacturing the product, only took over the counter ranitidine, or took ranitidine before Novitium began manufacturing it. Two of those 111114 plaintiffs dismissed Novitium from their short form complaints. In light of the Court’s dismissal of all claims with prejudice, Novitium has not pursued dismissal of the short form complaints against it at this time.

Following the district court’s Daubert

decision, plaintiffs began filing additional short form complaints in the MDL. Novitium currently is named as a defendant in more than 700 short form complaints. The district court is in the process of entering final judgments on several of the cases in order to achieve a more consolidated appeal.The cases that are currently before the Eleventh Circuit are stalled as the court determines if some of the cases should be remanded back to the district court for entry of final judgment.


On June 1, 2023, ANI was provided with “courtesy service” of nine short form complaints filed in the Zantac MDL 2924 in the Southern District of Florida, which purport to assert personal injury claims against ANI relating to ranitidine products.The plaintiffs are: (1) David L. Eads, Case No. 3:23-cv-23009-XXXX (alleged to have been diagnosed with cancer in 2016, before ANI began selling generic prescription ranitidine products); (2) Luis E. Acevedo, Case No. 3:23-cv-80534-XXXX (alleged to have been diagnosed with cancer in June 2019, before ANI began selling generic prescription ranitidine products); (3) Shellie Green, Case No. 3:23-cv-23032-XXXX; (4) Patricia Manders, individually and on behalf of the Estate of Jerry Manders, Case No. 3:23-cv-23026-XXXX (alleged to have died in March 2019, before ANI began selling generic prescription ranitidine products); (5) Christine Behrman, individually and on behalf of the Estate of Ralph Behrman, Case No. 3:23-cv-23016-XXXX; (6) Wendy Kelfer, individually and on behalf of the Estate of Sidney Kelfer, Case No. 3:23-cv-23029-XXXX; (7) Helen Romero, individually and on behalf of the Estate of Deborah Kilborn, Case No. 3:23-cv-23008-XXXX; (8) Jeffrey Eugene Guidry, Case No. 3:23-cv-22980-XXXX; and (9) Ruth Copeland, Case No. 3:23-cv-22973-XXXX (alleged to have been diagnosed with cancer in 2015, before ANI began selling generic prescription ranitidine products).The service cover letter acknowledges that the Zantac MDL is closed due to the pending appeal and the court is not issuing summonses.
ANI and Novitium dispute any liability in these matters.
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State Court Personal Injury Litigation
Illinois. On February 3, 2022, a complaint was filed in Cook County, Illinois, naming Novitium as a defendant. The complaint incorrectly identifies Novitium as a “repackager.” The case is styled Ross v. Boehringer Ingelheim Pharmaceuticals, Inc., et. al. The complaint asserts claims of strict liability/failure to warn, strict liability/design defect, negligent failure to warn, negligent product design, general negligence, negligent misrepresentation, breach of express and implied warranties, and unjust enrichment. The plaintiff alleges that he was diagnosed with prostate cancer in 2017, before Novitium began selling generic ranitidine products, -- and that he took over the counter ranitidine that he purchased at Walgreens from 2008 to 2019. At this point, the allegations show that the plaintiff’s alleged cancer injury could not have come from a Novitium product. The generic manufacturer defendants filed a motion to dismiss on preemption grounds,grounds. That motion is pending.

In August 2022, the Keller Postman law firm commenced six multi-plaintiff actions in Illinois state court naming generic ranitidine manufacturers, including ANI and/or Novitium, as defendants. Those cases are: (1) Jodee Gillespie v. Walgreen Co., et. al., Circuit Court of the Third Judicial Circuit, Madison County, Illinois, Case No. 2022LA001007 (naming both Novitium and ANI); (2) John Jackson v. Walgreen Co., et. al., Circuit Court of the Third Judicial Circuit, Madison County, Illinois, Case No. 2022LA001012 (naming Novitium); (3) Ayesha Salahuddin v. Walgreen Co., et. al., Circuit Court of the Twentieth Judicial Circuit, St. Clair County, Illinois, Case No. 22LA0709 (naming Novitium); (4) Lashanda McGruder v. Walgreen Co., et. al., Circuit Court of the Third Judicial Circuit, Madison County, Illinois, Case No. 22LA0710 (naming both Novitium and ANI); (5) Richard Devriendt v. Walgreen Co., et. al., Circuit Court of Cook County, Illinois, Case No. 2022L007429 (naming Novitium); (6) Anthony Stigger v. Walgreen Co., et. al., Circuit Court of Cook County, Illinois, Case No. 2022L007396 (naming both Novitium and ANI). The complaints allege causes of action for failure to warn, design defect, general negligence, loss of consortium and wrongful death. Pursuant to an Order of the Illinois Supreme Court dated October 25, 2022, the pending ranitidine personal injury actions in Illinois have been consolidated in Cook County for coordinated pre-trial proceedings. Those pre-trial proceedings are pending in the Circuit Court of Cook County. On January 12, 2023, the court directed the plaintiffs to dismiss the multi-plaintiff actions and refile each individual plaintiff action under a separate case number. At a status conference held on February 16, 2023, the court required that the plaintiffs re-file within 60 days. The court also authorized use of a master complaint. Plaintiffs filed a master long-form complaint on March 9, 2023 naming Novitium as a defendant. ANI is not named as a defendant. The Keller Postman firm has confirmed that its clients are no longer pursuing claims against ANI. When the court ruled the cases needed to be re-filed as single-plaintiff cases, Novitium was never served.The counts in the master complaint include strict liability for failure to warn/design defects, general negligence, negligent misrepresentation, negligent storage and transport, apparent manufacturer liability, common law fraud, unjust enrichment, civil conspiracy, and breach of express and implied warranties. The complaint further alleges violations of the Illinois Consumer Fraud Act. Pursuant to the court’s standing order, the generic defendants filed a motion to dismiss pursuant to IL 2-615 (failure to state a claim on the face of the complaint) on April 13, 2023, claiming preemption by federal law. In addition, the generic defendants argue that Plaintiffs failed to meet Illinois’ fact pleading standards, as the complaint fails to specifically allege the misconduct of any generic defendant. There has been no ruling on the motion to dismiss. The court has set a number of cases for preferential trial settings, including a case in which hasNovitium is named, Wodstrchill, which is set for trial in February 2025.

31


California.In August and September 2022, the Keller Postman law firm commenced seven multi-plaintiff actions in California state court, Alameda County, naming generic ranitidine manufacturers, including ANI and/or Novitium, as defendants. Those cases are: (1) Carlos Ascencio v. ANI Pharmaceuticals, et. al., Superior Court of California, County of Alameda, Case. No. 22CV016230 (naming both Novitium and ANI); (2) Andre Lebeau v. Actavis Mid Atlantic, LLC et. al., Superior Court of California, County of Alameda, Case No. 22CV016448 (naming Novitium); (3) Roque Torres v. ANI Pharmaceuticals, Inc., et. al., Superior Court of California, County of Alameda, Case No. 22CV016338 (naming both Novitium and ANI); (4) Deborah Hinds v. ANI Pharmaceuticals, Inc., et. al., Superior Court of California, County of Alameda, Case No. 22CV016123 (naming both Novitium and ANI); (5) Mark Cruz v. ANI Pharmaceuticals, Inc., et. al., Superior Court of California, County of Alameda, Case No. 22CV016338 (naming both Novitium and ANI); (6) Bent Olsen v. ANI Pharmaceuticals, Inc., et. al., Superior Court of California, County of Alameda, Case No. 22CV016402 (naming both Novitium and ANI); (7) John Norman v. Actavis Mid Atlantic, LLC, et. al., Superior Court of California, County of Alameda, Case No. 22CV018334 (naming Novitium). The complaints allege causes of action for failure to warn, design defect, general negligence, loss of consortium and wrongful death. By stipulation and order dated December 28, 2022, the cases were transferred to an existing civil case coordination docket for pretrial proceedings (JCCP) pending in Alameda County. By order dated January 19, 2023, the court ordered that counsel for the plaintiffs must dismiss the individual plaintiffs (other than the first-named plaintiff) from each of the multi-plaintiff complaints and that each of the dismissed plaintiffs must re-file their claims in a single plaintiff complaint. As of April 25, 2023, ANI and Novitium had not yet been fully briefed,served with any of these single-plaintiff complaints. As of April 25, 2023, the Company is aware of three single-plaintiff cases in which Novitium is named as a defendant: David Duncan v. GSK Holdings, No. T23-507; Charmaine Sili v. GSK Holdings, No. T23-355; and Charles Crippen v. Boehringer, No.T23-349. At this time, none of the generic defendants have been served with any complaints.

Pennsylvania. In September 2022, two single-plaintiff complaints were filed in Pennsylvania state court, Philadelphia County, naming Novitium as a defendant: (1) William Titus v. Glaxo SmithKline LLC, et. al., Court of Common Pleas, Philadelphia County, Pennsylvania, Case No. 220902548; and (2) Jodi Woodard v. Ajanta Pharma USA, Inc., et. al., Court of Common Pleas, Philadelphia County, Pennsylvania, Case No. 220902329. These complaints allege causes of action for negligence, failure to warn, negligent storage and transportation, breach of express and implied warranties, negligent misrepresentation, and fraud. On February 16, 2023, the Pennsylvania plaintiffs filed a consolidated long-form complaint against the generic defendants, Plaintiffs v. Actavis, et. al. Civil Action No. 1364. The long-form complaint names Novitium as a defendant. The long form complaint asserts causes of action for negligence, failure to warn, negligent storage and transportation, breach of express warranties, breach of implied warranties, negligent misrepresentation, fraud, strict products liability, wrongful death and survivor actions, and loss of consortium. The complaint includes a prayer for punitive damages.The generic defendants filed their preliminary objections to Plaintiffs’ consolidated long-form generic complaint on March 20, 2023. The court sustained the generics’ objection that plaintiffs’ failure to warn/design defect claims were preempted by federal law; therefore, all allegations related to failure to warn/design defects are dismissed.The court also sustained the generics’ preliminary objections relating to the counts of strict liability-design defect and breach of implied warranty to the extent Pennsylvania substantive law applies. The court noted the substantive law of another state may not conflict with federal law, and, further, strict liability and breach of implied warranty causes of action of another state may apply in individual cases.This is still pending.  

a determination that can only be made after short form complaints are filed.

It is the generics’ position that the court’s ruling on the preliminary orders effectively dismissed the generics from the case unless and until a non-resident plaintiff names a generic in a short form complaint.Out of an abundance of caution, however, the generics, including Novitium, all filed answers to the longform complaint in June 2023.

ANI and Novitium dispute any liability in these MDL matters.

Other Industry Related Matters

On or about September 20, 2017, the Company and certain of its employees were served with search warrants and/or grand jury subpoenas to produce documents and possibly testify relating to a federal investigation of the

generic pharmaceutical industry. We have been cooperating and intend to continue cooperating with the investigation. However, no assurance can be given as to the timing or outcome of the investigation.

14.

FAIR VALUE DISCLOSURES

13.    FAIR VALUE DISCLOSURES
Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework that prioritizes and ranks the level of observability of inputs used in measuring fair value.

32


The inputs used in measuring the fair value of cash and cash equivalents are considered to be Level 1 in accordance with the three-tier fair value hierarchy. The fair market values are based on period-end statements supplied by the various banks and brokers that held the majority of our funds. The fair value of short-term financial instruments (primarily accounts receivable, prepaid expenses, accounts payable, accrued expenses, and other current liabilities) approximate their carrying values because of their short-term nature. The Term Facility bears an interest rate that

32

fluctuates with the changes in LIBOR and, because the variable interest rates approximate market borrowing rates available to us, we believe the carrying values of these borrowings approximated their fair values at June 30, 2022.

2023.

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

Contingent Value Rights

Our contingent value rights (“CVRs”), which were granted coincident with our merger with BioSante and expireexpired in June 2023, arewere considered contingent consideration and arewere classified as liabilities. As such, theThe CVRs expired on June 19, 2023 and there were recorded as purchase consideration at their estimated fair value, using level 3 inputs, and are marked to market each reporting period until settlement. The fair value of CVRs is estimated using the present value of our projection of the expectedno payments made pursuant to the terms of the CVR agreement, which is the primary unobservable input. If our projection or expected payments were to increase substantially, the value of the CVRs could increase as a result. The present value of the liability was calculated using a discount rate of 15%. We determined that the fair value of the CVRs was immaterial as of June 30, 2022 and December 31, 2021. We also determined that the changes in such fair value were immaterial in the three and six months ended June 30, 2022 and 2021.

agreement.

Interest Rate Swap

The fair value of our interest rate swap is estimated based on the present value of projected future cash flows using the LIBOR forward rate curve. The model used to value the interest rate swap includes inputs of readily observable market data, a Level 2 input. As described in detail in Note 6,5, the fair value of the interest rate swap was a $3.6$9.2 million asset as of June 30, 2022.

2023.

Contingent Consideration

In connection with the acquisition of Novitium, we may pay up to $46.5 million in additional consideration related to the achievement of certain milestones, including milestones on gross profit of Novitium portfolio products over a 24-month period, regulatory filings completed during this 24-month period, and a percentage of net profits on certain products that are launched in the future.

The discounted cash flow method used to value this contingent consideration includes inputs of not readily observable market data, which are Level 3 inputs. The recurring Level 3 fair value measurements of contingent consideration for which a liability is recorded include the following significant unobservable inputs:

Payment Type

Valuation Technique

Unobservable Input

Assumptions

Profit-based milestone payments

Probability-weighted discounted cash flow

Discount rate

14.0%

Projected fiscal year of payment

2023-2029

2024-2030

Product development-based milestone payments

Probability-weighted discounted cash flow

Discount rate

17.9%

9.0%

Probability of payment

90.0%

100.0%

Projected fiscal year of payment

2023-2024

2024

The following table presents the changes in contingent consideration balances classified as Level 3 balances for the three and six months ended June 30, 20222023 and 2021:

Three Months Ended June 30, 

Six Months Ended June 30, 

(in thousands)

    

2022

    

2021

    

2022

    

2021

    

Beginning balance

$

32,053

$

$

31,000

$

Measurement period adjustment

300

2022:

Three Months Ended June 30,Six Months Ended June 30,
(in thousands)2023202220232022
Beginning balance$36,019 $32,053 $35,058 $31,000 
Measurement period adjustment— — — 300 
Change in fair value1,035 (1,095)1,996 (342)
Ending balance$37,054 $30,958 $37,054 $30,958 

33



Change in fair value

 

(1,095)

 

 

(342)

 

Ending balance

$

30,958

$

$

30,958

$

The following table presents our financial assets and liabilities accounted for at fair value on a recurring basis as of June 30, 20222023 and December 31, 2021,2022, by level within the fair value hierarchy:

(in thousands)

Fair Value at

Description

June 30, 2022

Level 1

Level 2

Level 3

Assets

 

  

 

  

 

  

 

  

Interest rate swap

$

3,636

$

$

3,636

$

Liabilities

 

  

 

  

 

  

 

  

Contingent consideration

$

30,958

$

$

$

30,958

CVRs

$

$

$

$

    

Fair Value at

    

    

    

Description

December 31, 2021

Level 1

Level 2

Level 3

Liabilities

 

  

 

  

 

  

 

  

Contingent consideration

$

31,000

$

$

$

31,000

Interest rate swaps

$

6,790

$

$

6,790

$

CVRs

$

$

$

$

(in thousands)
Description
Fair Value at
June 30, 2023
Level 1Level 2Level 3
Assets
Interest rate swap$9,174 $— $9,174 $— 
Liabilities    
Contingent consideration$37,054 $— $— $37,054 
DescriptionFair Value at
December 31, 2022
Level 1Level 2Level 3
Assets   
Interest rate swap$8,759 $— $8,759 $— 
Liabilities    
Contingent consideration$35,058 $— $— $35,058 
CVRs$— $— $— $— 
Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

We do not have any financial assets and liabilities that are measured at fair value on a non-recurring basis.

Non-Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

We do not have any non-financial assets and liabilities that are measured at fair value on a recurring basis.

Non-Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

We measure our long-lived assets, including property, plant, and equipment, ROUright-of-use (“ROU”) assets, intangible assets, and goodwill, at fair value on a non-recurring basis. These assets are recognized at fair value when they are deemed to be other-than-temporarily impaired. No such fair value impairment was recognized in the three and six months ended June 30, 20222023 and 2021.

2022.

34


Acquired Non-Financial Assets Measured at Fair Value

In April 2021,

On May 25, 2023, we acquired three NDAstwo ANDAs and an ANDAone pipeline product from the Chapter 7 Trustee for the estates of Akorn Holding Company and certain related inventories from Sandoz, Inc.of its affiliates for total consideration of $20.7$4.8 million. We also incurred and paid $0.4 million inThe transaction costs directly related to the acquisition. The acquisition was funded via borrowings under the revolving facility portion of our prior credit facility.from cash on hand. We accounted for this transaction as an asset acquisition and capitalized the transaction costs directly related to the acquisition. The product portfolio included two commercial products and one pipeline product. We recognized $11.4$4.3 million as acquired ANDA intangible assets. The payment was allocated to the acquired intangible assets and $9.7 million of inventory atin-process research and development based on relative fair value, including $0.6 million of API, $1.0 million of sample inventory, and $8.1 million in finished goods inventory. In order to determine the fair value of the intangible assets, we used the present value of the estimated cash flows related to the product rights using a discount rate of 10%, which are level 3 unobservable inputs. The fair value of the inventory was determined based on the estimated selling price to be generated from the finished goods, less costs to sell, including a reasonable margin, which are levelusing Level 3 unobservable inputs. The intangible assets are beingANDA’s will be amortized in full over aits useful life of seven years and will be tested for impairment when events or circumstances indicate that the carrying value of the asset may not be recoverable. No such triggering events were identified during the period from the date of acquisition to June 30, 20222023, and therefore 0no impairment loss was recognized for the six months ended June 30, 2022.

34

15.

PURIFIED CORTROPHIN GEL PRE-LAUNCH CHARGES

In January 2016, we acquired the right, title and interest in the NDAs for Cortrophin Gel and Cortrophin-Zinc. Subsequently, we assembled a Cortrophin Gel re-commercialization team of scientists, executed a long-term supply agreement with a supplier of pig pituitary glands, our primary raw material for corticotrophin API, executed a long-term supply agreement with an API manufacturer, with whom we have advanced the manufacture of corticotropin API via manufacture of commercial-scale batches, and executed a long-term commercial supply agreement with a current good manufacturing practice (“cGMP”) aseptic fill contract manufacturer.

Prior to the third quarter 2019, all purchases of material, including pig pituitary glands and API, related to the re-commercialization efforts were consumed in research and development activities and recognized as research and development expense in the period in which they were incurred. In the third quarter of 2019, we began purchasing materials that are intended to be used commercially in anticipation of FDA approval of Cortrophin Gel and the resultant product launch. The FDA granted approval of the sNDA of this product on October 29, 2021. Prior to FDA approval, under U.S. GAAP, we were prohibited from capitalizing these pre-launch purchases of materials as inventory, and accordingly, they were charged to expense in the period in which they were incurred. Subsequent to approval, these purchases are recorded as inventory at net realizable value. During the three and six months ended June 30, 2021,2023.

On July 21, 2022, we recognized ac$0.5quired four ANDAs from Oakrum Pharma, LLC for total consideration of $8.0 million plus an immaterial amount for the purchase of finished goods inventory. The transaction was funded from cash on hand. We accounted for this transaction as an asset acquisition and $0.6 million, respectively, of chargescapitalized the transaction costs directly related to purchasesthe acquisition. The product portfolio included one commercial product, one approved product with a launch completed in September and two filed products, with approval pending. We recognized $7.2 million as acquired ANDA intangible assets and $1.2 million as research and development expense because certain of pre-launch materials.

the generic products have significant remaining work required in order to be commercialized and the products do not have an alternative future use. The payment was allocated to the acquired intangible assets and in-process research and development based on relative fair value, which was determined using Level 3 unobservable inputs. We used the present value of the estimated cash flows related to the products, using a discount rate of 13% to determine the fair value of the acquired intangible assets and in-process research and development. The inventory acquired was immaterial. Contingent liabilities are accrued when they are both estimable and probable. As of June 30, 2023, we accrued $0.2 million in contingent payments due to a third party upon the launch of a product completed in September. This was accrued and recorded in the fair value of acquired intangible assets as it was probable at the acquisition date. The ANDA’s will be amortized in full over its useful life of seven years and will be tested for impairment when events or circumstances indicate that the carrying value of the asset may not be recoverable. No such triggering events were identified during the period from the date of acquisition to June 30, 2023, and therefore no impairment loss was recognized for the three and six months ended June 30, 2023.

16.

14.    RELATED PARTY TRANSACTIONS

On March 8, 2021, we entered into an Equity Commitment and Investment Agreement with the PIPE Investor, pursuant to which we agreed to issue and sell 25,000 shares of our PIPE Shares for a purchase price of $1,000 per share and an aggregate purchase price of $25.0 million. This agreement closed and the shares were sold and issued for $25.0 million on November 19, 2021. The Chairman of our board of directors is an operating partner of Ampersand Capital Partners, an affiliate of the PIPE Investor.

In connection with our acquisition of Novitium, we entered into employment agreements with the two executives and founders of Novitium, Muthusamy Shanmugam and Chad Gassert. Both serve as executive officers of the Company and Mr. Shanmugam also serves on the Company’s board of directors. Mr. Shanmugam holds a minority interest in Scitus Pharma Services (“Scitus”), which provides clinical research services to Novitium,Novitium; majority interest in SS Pharma LLC (“SS Pharma”), which acquires and supplies API to Novitium,Novitium; majority interest in Esjay Pharma LLC (“Esjay”), which providesprovided research and development and facilities consulting services,services; and a minority interest in Nuray Chemical Private Limited (“Nuray”), which manufactures and supplies API to Novitium. As of September 30, 2022, Esjay no longer provided research and development and facilities consulting services to Novitium or ANI. Mr. Gassert holds a minority interest in Scitus. During the three months ended June 30, 2022, we paid Esjay an immaterial amount, paid SS Pharma $0.7 million, and paid Scitus $0.7 million. During the three months ended June 30, 2022, there were 0
35


A summary of our payments to Nuray. During the six months ended June 30, 2022, we paid Esjay $0.1 million, paid SS Pharma $1.6 million, paid Nuray $0.9 million, and paid Scitus $1.3 million. related parties is presented below:
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Scitus Pharma Services$1,188 $730 $1,905 $1,291 
SS Pharma LLC1,978 687 3,579 1,645 
Esjay Pharma LLC— 27 — 101 
Nuray Chemical Private Limited— — — 868 
$3,166 $1,444 $5,484 $3,905 
As of June 30, 2022,2023, the outstanding balances due to Scitus and SS Pharma were $1.2 million and $0.3 million, respectively. There was no outstanding balance due to Scitus was $50 thousand and the outstanding balance due to SS Pharma was $0.6 million. As ofNuray at June 30, 2022, there were 0 outstanding2023. balances due to Esjay and Nuray.

17.

15.    SEGMENT REPORTING

An operating segment is defined as a component of an entity that engages in business activities from which it may recognize revenues and incur expense, its operating results are regularly reviewed by the entity’s chief operating decision maker (“CODM”) to make decisions about resources to be allocated to the segment and assess its performance, and its discrete financial information is available. Prior to 2022, based on this definition, we had concluded that we had 1 operating segment. Prior period segment disclosures have been recast for the new segment presentation. Effective in the first quarter of 2022 and prospectively, in conjunction with the principal completion of our buildout of infrastructure in the areas of commercialization of rare disease therapies and the launch of Cortrophin Gel, weWe determined that we have 2two operating segments as follows:

35

Generics, Established Brands, and Other – Consists of operations related to the development, manufacturing, and marketing of generic and established brand pharmaceuticals, including those sold through traditional channels, contract manufactured products, product development services, royalties, and other.
Rare Disease – Consists of operations related to the development, manufacturing and marketing of pharmaceuticals used in the treatment of patients with rare conditions. The rare disease segment currently consists of operations related to Cortrophin Gel.
Generics, Established Brands, and Other – Consists of operations related to the development, manufacturing, and marketing of generic and established brand pharmaceuticals, including those sold through traditional channels, contract manufactured products, product development services, royalties, and other.

Rare Disease – Consists of operations related to the development, manufacturing and marketing of pharmaceuticals used in the treatment of patients with rare conditions. The rare disease segment currently consists of operations related to Cortrophin Gel.

Our CODM evaluates our two operating segments based on revenues and earnings before interest, income taxes, depreciation, and amortization (“EBITDA”), exclusive of corporate expenses and other expenses not directly allocated or attributable to an operating segment. These expenses include, but are not limited to, certain management, legal, accounting, human resources, insurance, and information technology expenses.

We do not manage assets of the Company by operating segment and our CODM does not review asset information by operating segment. Accordingly, we do not present total assets by operating segment.

36


Financial information by reportable segment including historical information that has been retroactively re-cast to reflect our two operating segments, is as follows:
Three Months Ended June 30,Six Months Ended June 30,
(in thousands)2023202220232022
Net Revenues
Generics, Established Brands, and Other$92,243 $63,653 $182,699 $126,838 
Rare Disease24,304 10,202 40,634 11,494 
Total net revenues$116,547 $73,855 $223,333 $138,332 
Segment earnings (loss) before interest, taxes, depreciation and amortization (“EBITDA”) and reconciliation to income (loss) before income taxes
Generics, Established Brands, and Other$39,937 $15,473 $78,765 $30,004 
Rare Disease4,215 (6,663)2,964 (17,111)
Depreciation and amortization(14,690)(13,764)(29,390)(28,321)
Corporate and other unallocated expenses(1)
(17,060)(7,959)(30,042)(16,680)
Total operating income (loss)12,402 (12,913)22,297 (32,108)
Interest expense, net(7,100)(6,669)(14,796)(13,282)
Other (expense) income, net(53)764 (87)675 
Income (Loss) Before Income Tax Benefit$5,249 $(18,818)$7,414 $(44,715)

(1)

Three Months Ended June 30, 

Six Months Ended June 30, 

(in thousands)

    

2022

    

2021

2022

    

2021

Net Revenues

Generics, Established Brands, and Other

$

63,653

$

48,625

$

126,838

$

103,146

Rare Disease

10,202

11,494

Total net revenues

$

73,855

$

48,625

$

138,332

$

103,146

Segment earnings/(loss) before interest, taxes, depreciation and amortization (“EBITDA”) and reconciliation to (loss)/income before income taxes

Generics, Established Brands, and Other

15,473

14,660

30,004

36,499

Rare Disease

(6,663)

(4,473)

(17,111)

(5,751)

Depreciation and amortization

(13,764)

(11,324)

(28,321)

(22,222)

Corporate and other unallocated expenses(1)

(7,959)

(14,416)

(16,680)

(21,034)

Total operating loss

$

(12,913)

$

(15,553)

$

(32,108)

$

(12,508)

Interest expense, net

(6,669)

(2,531)

(13,282)

(4,985)

Other income/(expense), net

764

(67)

675

(582)

Loss before benefit for income taxes

$

(18,818)

$

(18,151)

$

(44,715)

$

(18,075)

Includes expenses not directly allocated or attributable to a reporting segment, including certain management, legal, accounting, human resources, insurance, and information technology expenses, and are included in selling, general, and administrative expenses in our unaudited interim consolidated statement of operations.
(1)Includes expenses not directly allocated or attributable to a reporting segment, including certain management, legal, accounting, human resources, insurance, and information technology expenses, and are included in selling, general, and administrative expenses in our unaudited interim consolidated statement of operations.

Geographic Information

Our operations are currently located in the United States Canada, and India. We have ceased operations at our Oakville, Ontario, Canada location as of June 30, 2023. The majority of the assets of the Company are located in the United States.

The following table depicts the Company’s revenue by geographic operations during the following periods:

(in thousands)

Three Months Ended June 30, 

Six Months Ended June 30, 

Location of Operations

    

2022

    

2021

    

2022

    

2021

    

United States

$

72,811

$

47,580

$

136,571

$

100,907

Canada

 

1,044

 

1,045

 

1,761

 

2,239

Total Revenue

$

73,855

$

48,625

$

138,332

$

103,146

36

(in thousands)Three Months Ended June 30,Six Months Ended June 30,
Location of Operations2023202220232022
United States$116,547 $72,811 $222,768 $136,571 
Canada— 1,044 565 1,761 
Total Revenue$116,547 $73,855 $223,333 $138,332 

The following table depicts the Company’s property, plant and equipment, net according to geographic location as of:

(in thousands)June 30, 2023December 31, 2022
United States$43,156 $40,343 
Canada(1)
— 1,856 
India1,215 1,047 
Total property and equipment, net$44,371 $43,246 

(1)

(in thousands)

June 30, 2022

December 31, 2021

United States

$

38,964

$

38,564

Canada(1)

 

4,552

 

13,831

India

 

255

 

276

Total property and equipment, net

$

43,771

$

52,671

(1)Amounts as of June 30, 2022 exclude the land and building at our Canada facility, which are classified as held for sale as of June 30, 2022.Amounts as of June 30, 2023 exclude the land and building at our Canada facility, which are classified as held for sale as of June 30, 2023. These assets have a carrying value of $8.0 million.

18. SUBSEQUENT EVENT

On July 21, 2022, we acquired four ANDAs from Oakrum Pharma, LLC for a purchase price of $8.0 million plus an immaterial amount for the purchase of API and finished goods inventory. The transaction was funded from cash on hand.

million.


37


Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited interim condensed consolidated financial statements and the accompanying notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, the audited consolidated financial statements and the accompanying notes thereto in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “20212022(the “2022 Annual Report”), as well as the information contained under Management’s Discussion and Analysis of Financial Condition and Results of Operations and “Risk Factors” contained in the 20212022 Annual Report, and Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q , and other information provided from time to time in our other filings with the SEC. This discussion contains forward-looking statements, based on current expectations and related to future events and our future financial performance, that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many important factors, including those set forth under “Risk Factors” in our 20212022 Annual Report and this Quarterly Report on Form 10-Q.

EXECUTIVE OVERVIEW

ANI Pharmaceuticals, Inc. and its consolidated subsidiaries (together, “ANI,” the “Company,” “we,” “us,” or “our”) is a diversified bio-pharmaceutical company serving patients in need by developing, manufacturing, and marketing high quality branded and generic prescription pharmaceuticals, including for diseases with high unmet medical need. Our team is focused on delivering sustainable growth by building ascaling up our Rare Disease business through the successful launch of our lead asset, Cortrophin Gel, franchise, strengthening our generics business with enhanced development capability, innovation in established brands and leveraging our North American manufacturing capabilities. Our fourthree pharmaceutical manufacturing facilities, of which two are located in Baudette, Minnesota, and one is located in East Windsor, New Jersey, and one is located in Oakville, Ontario, are together capable of producing oral solid dose products, as well as semi-solids, liquids and topicals, controlled substances, and potent products that must be manufactured in a fully-contained environment. On June 2, 2022, we announced that we intendintended to cease operations at our Oakville, Ontario, Canada manufacturing plant by the end of the first quarter 2023. This action iswas part of ongoing initiatives to capture operational synergies following our acquisition of Novitium Pharma LLC (“Novitium”) in November 2021. We willpreviously completed the transition of the majority of products manufactured or packaged in Oakville to one of our three U.S.-based manufacturing sites.

Strategy

Our objective is to build a sustainable and growing biopharmaceutical company serving patients in need and creating long-term value for our investors. Our growth strategy is driven by the following key pillars:

growth drivers:

Building a successful Purified Cortrophin Gel franchise

Rare Disease platform

We have spent significant time, effort and resources in establishing our Rare Disease platform. We acquired the NDAs for Cortrophin gelGel and Cortrophin-Zinc in January 2016 and executed long-term supply agreements with a supplier of our primary raw material for corticotrophin active pharmaceutical ingredient (“API”), a supplier of corticotrophin API with whom we have advanced the manufacture of commercial scale batches of API, and a Cortrophin gelGel fill/finish contract manufacturer. During the second quarter of 2021, we submitted a Supplemental New Drug Application (“sNDA”) to the FDA.

On October 29, 2021, the FDA approved the Company’s sNDA for Purified Cortrophin®Cortrophin Gel (Repository Corticotropin Injection USP) for the treatment of certain chronic autoimmune disorders, including acute exacerbations of multiple sclerosis (“MS”) and rheumatoid arthritis (“RA”), in addition to excess urinary protein due to nephrotic syndrome. Cortrophin Gel is an adrenocorticotropic hormone (“ACTH”), also known as purified corticotropin.

During 2021 and the first half of 2022, we invested significantly in leadership, expertise and infrastructure in the areas of commercialization of rare disease therapies and developed a launch strategy and commercial plan for this product. In the fourth quarter of 2021 and first half of 2022,During this timeframe, we hired a significant number of new employees and assembled and trained our rare diseaseRare Disease field force. On January 24, 2022, we announced the commercial launch of Cortrophin Gel in the U.S.U.S as our foundational Rare Disease asset. As

38

a result of the build out of our rare diseaseRare Disease team, our expenditures in support of these efforts will bewere significantly higher in 2022 as compared to 2021.

the prior year, and we plan to continue to invest behind Cortrophin Gel and our Rare Disease platform in 2023 and beyond.

38


Strengthening our generics business with enhancedGenerics, Established Brands, and Other segment through continued investment in our generic research and development capability and increased focus on niche opportunities

We have grown our generics business through a combination of market share gains on existing products and new product launches. We have also successfully acquired numerous ANDAs through business and asset acquisitions, including,acquisitions. Our most recently, ourrecent business acquisition ofwas Novitium, Pharma LLC (“Novitium”), including its portfolio of commercial and pipeline generic products, manufacturing and development facilities and expert workforce. The Novitium acquisition significantly increased our generic pharmaceutical research and development and manufacturing capabilities. We have begun to increase our focus on niche lower competition opportunities such as injectables, Paragraph IV, and Competitive Generic Therapy designation filings. Additionally, we will continue to seek opportunities to enhance our capabilities through strategic partnerships and acquisitions of assets and businesses.

Maximizing On July 21, 2022, we completed an asset acquisition of four ANDAs from Oakrum Pharma, including two that were commercial at the valuetime of acquisition. On May 25, 2023, we acquired two ANDAs and one pipeline product from the Chapter 7 Trustee for the estates of Akorn Holding Company and certain of its affiliates.

We have grown our established brandsbrand product offerings through innovative “go-to-market” (“GTM”) strategies and continued programmatic acquisitions

acquisition. We have acquired the New Drug Applications (“NDAs”)NDAs for and market Atacand, Atacand HCT, Arimidex, Casodex, Lithobid, Vancocin, Inderal LA, Inderal XL, InnoPran XL, Oxistat, Veregen, and Pandel. We are innovating in our GTMgo-to-market strategy through creative partnerships. In addition, we will continue to explore opportunities in acquiring new brands to grow our established brands portfolio.

Expansion of contract development and manufacturing organization (“CDMO”) business by leveraging our unique manufacturing capabilities

We built a CDMO business through our sites in Baudette, Minnesota and grew it through acquisitions.

Our U.S.-based manufacturing and unique capabilities in high-potency, hormonal, steroid, and oncolytic products can be leveraged to expand our CDMO business.

The pillars of ouroverall strategy areis enabled by an empowered, collaborative, and purposeful team with a high performance-orientation.

Generic Product Development Considerations

We consider a variety of criteria in determining which products to develop, all of which influence the level of competition upon product launch. These criteria include:

Formulation Complexity. Our development and manufacturing capabilities enable us to manufacture pharmaceuticals that are difficult to produce, including highly potent, extended release, combination, and low dosage products. This ability to manufacture a variety of complex products is a competitive strength that we intend to leverage in selecting products to develop or manufacture.
Patent Status. We seek to develop products whose branded bioequivalents do not have long-term patent protection or existing patent challenges.
Market Size. When determining whether to develop or acquire an individual product, we review the current and expected market size for that product at launch, as well as forecasted price erosion upon conversion from branded to generic pricing. We endeavor to manufacture products with sufficient market size to enable us to enter the market with a strong likelihood of being able to price our products both competitively and at a profit.
Profit Potential. We research the availability and cost of active pharmaceutical ingredients in determining which products to develop or acquire. In determining the potential profit of a product, we forecast our anticipated market share, pricing, including the expected price erosion caused by competition from other generic manufacturers, and the estimated cost to manufacture the products.

Formulation Complexity. Our development and manufacturing capabilities enable us to manufacture pharmaceuticals that are difficult to produce, including highly potent, extended release, combination, and low dosage products. This ability to manufacture a variety of complex products is a competitive strength that we intend to leverage in selecting products to develop or manufacture.

Patent Status. We seek to develop products whose branded bioequivalents do not have long-term patent protection or existing patent challenges.
Market Size. When determining whether to develop or acquire an individual product, we review the current and expected market size for that product at launch, as well as forecasted price erosion upon conversion from branded to generic pricing. We endeavor to manufacture products with sufficient market size to enable us to enter the market with a strong likelihood of being able to price our products both competitively and at a profit.
Profit Potential. We research the availability and cost of active pharmaceutical ingredients in determining which products to develop or acquire. In determining the potential profit of a product, we forecast our anticipated market share, pricing, including the expected price erosion caused by competition from other generic manufacturers, and the estimated cost to manufacture the products.
Manufacturing. We generally seek to develop and manufacture products at our own manufacturing plants in order to optimize the utilization of our facilities, ensure quality control in our products, and to more closely control the economic inputs and outputs of our products.
Competition. When determining whether to develop or acquire a product, we research existing and expected competition. We seek to develop products for which we can obtain sufficient market share and may decline to develop a product if we anticipate significant competition. Our specialized manufacturing facilities provide a means of entering niche markets, such as hormone therapies, in which fewer generic companies are able to compete.
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Manufacturing. We generally seek to develop and manufacture products at our own manufacturing plants in order to optimize the utilization of our facilities, ensure quality control in our products, and to more closely control the economic inputs and outputs of our products.
Competition. When determining whether to develop or acquire a product, we research existing and expected competition. We seek to develop products for which we can obtain sufficient market share and may decline to develop a product if we anticipate significant competition. Our specialized manufacturing facilities provide a means of entering niche markets, such as hormone therapies, in which fewer generic companies are able to compete.

Recent Developments

Public Offering
In May 2023, through a public offering, we completed the issuance and sale of 2,183,545 shares of ANI common stock, resulting in net proceeds after issuance costs of $80.6 million. The proceeds are being used to in-license, acquire or invest in additional businesses, technologies, products or assets, to fund our commercialization efforts, including, but not limited to, sales and marketing and consulting expenses related thereto, and for general corporate purposes.
Restructuring Update

On June 2, 2022, we announced that we intendintended to cease operations at our Oakville, Ontario, Canada manufacturing plant by the first quarter of 2023. This action iswas part of ongoing initiatives to capture operational synergies following our acquisition of Novitium in November 2021. We willpreviously completed the transition of the majority of products manufactured or packaged in Oakville to one of our three U.S.-based manufacturing sites. We are seeking to find potential buyers for the Oakville site, though there can be no assurance as to when or if that will occur or the amount of any net proceeds that may be received.

Operating Segment Update

Prior to 2022, we had concluded that we had one operating segment. Effective in the first quarter of 2022 and prospectively, in conjunction with the principal completion of our buildout of infrastructure in the areas of commercialization of rare disease therapies and the launch of Cortrophin Gel, we determined that we now have two operating segments as follows:

Generics, Established Brands, and Other – Consists of operations related to the development, manufacturing, and marketing of generic and established brand pharmaceuticals, including those sold through traditional channels, contract manufactured products (“CDMO”), product development services, royalties, and other.

Rare Disease – Consists of operations related to the development, manufacturing and marketing of pharmaceuticals used in the treatment of patients with rare conditions. The rare disease segment currently consists of operations related to Cortrophin Gel.

Product Launches

Refer to our website at www.anipharmaceuticals.com for information on the products, including indications/treatments.

Asset Acquisition

On July 21, 2022, we acquired four ANDAs from Oakrum Pharma, LLC for a purchase price of $8.0 million plus an immaterial amount for the purchase of API and finished goods inventory. The transaction was funded from cash on hand.

COVID-19 Impact

We continue to closely monitor the impact of the novel coronavirus (“COVID-19”) pandemic on our business and the geographic regions where we operate. While total market generic and brand prescriptions were depressed in earlier parts of 2021 as subsequent waves and variants of the virus impacted patient and customer behavior, prescriptions returned to pre-pandemic levels in late 2021 and into 2022. We continue to see disruptions to our supply chain from the COVID-19

40

pandemic during 2022, including significant lead times for purchases of materials. The pandemic has not impacted our access to capital and has not significantly impacted our use of funds.

We are unable to predict the impact that the COVID-19 pandemic will continue to have on our future financial condition, results of operations and cash flows due to numerous uncertainties, including the continued duration of the pandemic, the appearance of additional variants of the virus, the level of success of continued actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.

GENERAL

Impacts to our 20222023 and 20212022 results of operations, including to net revenues, operating expenses, interest and other expense, net, and income taxes are described below. Our results of operations for the three and six months ended June 30, 2022 were impacted by the November 19, 2021 acquisition of Novitium and related activity subsequent to that date. The acquisition provides additional revenues and the incurrence of increased costs, including but not limited to the amortization of intangible assets acquired, other operating costs, and increased interest costs on borrowings used to finance the transaction. During the three and six months ended June 30, 2022, Novitium operations generated $19.9 million and $39.1 million in net revenues, respectively.

The following table summarizes our results of operations for the periods indicated:

Three Months Ended

Six Months Ended

June 30, 

June 30, 

(in thousands)

    

2022

    

2021

    

2022

    

2021

Net revenues

$

73,855

$

48,625

$

138,332

$

103,146

Operating expenses

 

 

 

 

Cost of sales (exclusive of depreciation and amortization)

 

35,294

 

22,314

 

69,565

 

42,299

Research and development

 

4,165

 

2,805

 

9,439

 

5,773

Selling, general, and administrative

 

31,958

 

18,820

 

60,775

 

36,407

Depreciation and amortization

 

13,764

 

11,324

 

28,321

 

22,222

Contingent consideration fair value adjustment

(1,095)

(342)

Legal settlement expense

8,400

8,400

Purified Cortrophin Gel pre-launch charges

 

 

515

 

 

553

Restructuring activities

2,570

2,570

Intangible asset impairment charge

112

112

Operating loss

 

(12,913)

 

(15,553)

 

(32,108)

 

(12,508)

Interest expense, net

 

(6,669)

 

(2,531)

 

(13,282)

 

(4,985)

Other income/(expense), net

 

764

 

(67)

 

675

 

(582)

Loss before benefit for income taxes

 

(18,818)

 

(18,151)

 

(44,715)

 

(18,075)

Benefit for income taxes

 

3,895

 

4,045

 

9,662

 

4,055

Net loss

$

(14,923)

$

(14,106)

$

(35,053)

$

(14,020)

41

Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)2023202220232022
Net Revenues$116,547 $73,855 $223,333 $138,332 
Operating Expenses
Cost of sales (excluding depreciation and amortization)42,284 35,294 79,992 69,565 
Research and development7,374 4,165 13,298 9,439 
Selling, general, and administrative38,760 31,958 75,228 60,775 
Depreciation and amortization14,690 13,764 29,390 28,321 
Contingent consideration fair value adjustment1,035 (1,095)1,996 (342)
Restructuring activities2,570 1,132 2,570 
Intangible asset impairment charge— 112 — 112 
Operating Income (Loss)12,402 (12,913)22,297 (32,108)
Interest expense, net(7,100)(6,669)(14,796)(13,282)
Other (expense) income, net(53)764 (87)675 
Income (Loss) Before Income Tax Benefit5,249 (18,818)7,414 (44,715)
Income tax benefit996 3,895 270 9,662 
Net Income (Loss)$6,245 $(14,923)$7,684 $(35,053)
40


The following table sets forth, for all periods indicated, items in our unaudited interim condensed consolidated statements of operations as a percentage of net revenues:

Three Months Ended

 

Six Months Ended

 

June 30, 

 

June 30, 

 

    

2022

    

2021

 

    

2022

    

2021

 

Net revenues

 

100.0

%  

100.0

%

 

100.0

%  

100.0

%

Operating expenses

 

  

 

  

 

  

 

  

Cost of sales (exclusive of depreciation and amortization)

 

47.8

%  

45.9

%

 

50.3

%  

41.0

%

Research and development

 

5.6

%  

5.8

%

 

6.8

%  

5.6

%

Selling, general, and administrative

 

43.3

%  

38.7

%

 

43.9

%  

35.3

%

Depreciation and amortization

 

18.6

%  

23.3

%

 

20.5

%  

21.5

%

Contingent consideration fair value adjustment

(1.5)

%  

%  

(0.2)

%  

%  

Legal settlement expense

%  

17.3

%  

%  

8.1

%  

Purified Cortrophin Gel pre-launch charges

 

%  

1.1

%

 

%  

0.5

%

Restructuring activities

3.5

%  

%  

1.9

%  

%  

Intangible asset impairment charge

 

0.2

%  

%

 

0.1

%  

%

Operating loss

 

(17.5)

%  

(32.1)

%

 

(23.3)

%  

(12.0)

%

Interest expense, net

 

(9.0)

%  

(5.2)

%

 

(9.6)

%  

(4.8)

%

Other income/(expense), net

 

1.0

%  

(0.1)

%

 

0.5

%  

(0.6)

%

Loss before benefit for income taxes

 

(25.5)

%  

(37.4)

%

 

(32.4)

%  

(17.4)

%

Benefit for income taxes

 

5.3

%  

8.3

%

 

7.0

%  

3.9

%

Net loss

 

(20.2)

%  

(29.1)

%

 

(25.4)

%  

(13.5)

%

Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Net Revenues100 %100 %100 %100 %
Operating Expenses
Cost of sales (excluding depreciation and amortization)36.3 %47.8 %35.8 %50.3 %
Research and development6.3 %5.6 %6.0 %6.8 %
Selling, general, and administrative33.3 %43.3 %33.7 %43.9 %
Depreciation and amortization12.6 %18.6 %13.2 %20.5 %
Contingent consideration fair value adjustment0.9 %(1.5)%0.9 %(0.2)%
Restructuring activities— %3.5 %0.5 %1.9 %
Intangible asset impairment charge— %0.2 %— %0.1 %
Operating Income (Loss)10.6 %(17.5)%10.0 %(23.2)%
Interest expense, net(6.1)%(9.0)%(6.6)%(9.6)%
Other (expense) income, net— %1.0 %— %0.5 %
Income (Loss) Before Income Tax Benefit4.5 %(25.5)%3.3 %(32.3)%
Income tax benefit0.9 %5.3 %0.1 %7.0 %
Net Income (Loss)5.4 %(20.2)%3.4 %(25.3)%
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 20222023 AND 2021

2022

Net Revenues

Three Months Ended June 30, 

 

(in thousands)

    

2022

    

2021

    

Change

    

% Change

 

Generics, Established Brands, and Other Segment

Generic pharmaceutical products

$

49,863

$

34,199

$

15,664

 

45.8

%

Established brand pharmaceutical products

 

8,463

 

11,038

 

(2,575)

 

(23.3)

%

Contract manufacturing

 

4,389

 

2,322

 

2,067

 

89.0

%

Royalty and other

 

938

 

1,066

 

(128)

 

(12.0)

%

Generics, established brands, and other segment total net revenues

$

63,653

$

48,625

$

15,028

30.9

%

Rare Disease Segment

Rare disease pharmaceutical products

$

10,202

$

10,202

NM

(1)

Total net revenues

$

73,855

$

48,625

$

25,230

 

51.9

%

(1)Not meaningful

Three Months Ended June 30,
(in thousands)20232022Change% Change
Generics, Established Brands, and Other Segment
Generic pharmaceutical products$63,317 $49,863 $13,454 27.0 %
Established brand pharmaceutical products, royalties, and other pharmaceutical services28,926 13,790 15,136 109.8 %
Generics, established brands, and other segment total net revenues$92,243 $63,653 $28,590 44.9 %
Rare Disease Segment
Rare disease pharmaceutical products24,304 10,202 $14,102 138.2 %
Total net revenues$116,547 $73,855 $42,692 57.8 %
We derive substantially all of our revenues from sales of generic, rare disease, and established brand and rare disease pharmaceutical products, contract manufacturing, royalties on net sales of certain products, and other services, including development services, and laboratorypharmaceutical services. Many of our established brand products as well as our generic products face competition from generic products and we expect them to continue to face competition from generic products in the future. Our generic products face competition from other generic products and we expect them to continue to face competition in the future. The primary means of competition among generic manufacturers are pricing, contract terms, service levels, and reliability. Increased competition generally results in decreased average selling prices of generic and brand products over time. In addition, due to strategic partnerships between wholesalers and pharmacy chains, we have experienced, and expect to continue to experience, increases in net sales to the wholesalers, with corresponding decreases in net sales to the pharmacy chains.

42

41


Our rare disease pharmaceutical product, Purified Cortrophin Gel, competes in the ACTH therapeutic category against one principal brand competitor.

Net revenues for the three months ended June 30, 20222023 were $73.9$116.5 million compared to $48.6$73.9 million for the same period in 2021,2022, an increase of 51.9%57.8%, primarily as a result of the following factors:

Net revenues for generic pharmaceutical products were $49.9 million during the three months ended June 30, 2022, an increase of 45.8% compared to $34.2 million for the same period in 2021. From a product perspective, the increase was substantially driven by revenues from commercial generic products acquired in our acquisition of Novitium, including Prazosin, Prednisone, Famotidine, Oxybutynin Chloride, Dapsone, and various other products. The increase was also due to increased revenues of Nebivolol, which ANI launched in September 2021. Increases were tempered by a decrease in revenues from sales of Nicardipine and Esterified Estrogen with Methyltestosterone (“EEMT”) as well as several other legacy ANI generic products. The increase in net generic revenues was principally due to an increase in volumes and tempered by a decrease in average selling prices.

Net revenues for established brand pharmaceutical products were $8.5 million during the three months ended June 30, 2022, a decrease of 23.3% compared to $11.0 million for the same period in 2021. From a product perspective, the net decrease was driven by a decrease in sales of InnoPran XL and Inderal XL. These decreases were tempered by an increase in sales of Inderal LA and Atacand. The decrease in revenues for the three months ended June 30, 2022 was principally due to prior period adjustments or change in estimates to variable consideration, including returns and rebates.
Net revenues for generic pharmaceutical products were $63.3 million during the three months ended June 30, 2023, an increase of 27.0% compared to $49.9 million for the same period in 2022, driven by increased volumes on the base business, the annualization of 2022 launches and new product launches in 2023. From a product perspective, the increase was principally driven by revenues from year over year increases in Digoxin, Famotidine, Levocarnitine Tablets, Misoprostol, Mixed Amphetamine Salts Extended Release, Nitrofurantoin, Prochlorperazine, Pyrazinamide, and various other products tempered by a decrease in revenues of Mesalamine, Oxybutynin Chloride, and Prazosin, among others.
Net revenues for established brand pharmaceutical products, royalties, and other pharmaceutical services were $28.9 million during the three months ended June 30, 2023, an increase of 109.8% compared to $13.8 million for the same period in 2022, driven by an increase in volume.
Contract manufacturing revenues were $4.4 million during the three months ended June 30, 2022, an increase of 89.0% compared to $2.3 million for the same period in 2021, due to an increase in the volume of orders, primarily related to the addition of Novitium contract manufacturing revenues.

Royalty and other revenues were $0.9 million during the three months ended June 30, 2022, a decrease of $0.1 million from $1.1 million for the same period in 2021, primarily due to decreases in product development revenues earned by ANI Canada. Royalty and other revenues in 2022 primarily consist of $0.3 million of royalty revenues related to Novitium arrangements and $0.5 million of product development service revenues.
Net revenues of rare disease pharmaceutical products, which consist entirely of sales of Purified Cortrophin Gel, were $10.2 million during the three months ended June 30, 2022, as the product was launched in late January 2022. There were no sales of rare disease pharmaceutical products during the comparable prior year period.
Net revenues of rare disease pharmaceutical products, which consist entirely of sales of Cortrophin Gel, were $24.3 million during the three months ended June 30, 2023 an increase of $14.1 million from $10.2 million for the same period in 2022. This increase was driven by increased volume as the product was launched in late January 2022.
In addition to the above, within our Generic, established brand, and other segment in the current year period, we were successful in supplying incremental volume in markets that were experiencing supply chain disruptions for competitive products. There is no assurance as to how long into future periods these favorable market conditions will persist.

Cost of Sales (Excluding Depreciation and Amortization)

Three Months Ended June 30, 

 

(in thousands)

    

2022

    

2021

    

Change

    

% Change

 

Cost of sales (excl. depreciation and amortization)

$

35,294

$

22,314

$

12,980

 

58.2

%

Three Months Ended June 30,
(in thousands)20232022Change% Change
Cost of sales (excluding depreciation and amortization)$42,284 $35,294 $6,990 19.8 %
Cost of sales consists of direct labor, including manufacturing and packaging, active and inactive pharmaceutical ingredients, freight costs, packaging components, and royalties related to profit-sharing arrangements. Cost of sales does not include depreciation and amortization expense, which is reported as a separate component of operating expenses on our unaudited interim condensed consolidated statements of operations.

For the three months ended June 30, 2022,2023, cost of sales increased to $35.3$42.3 million from $22.3$35.3 million for the same period in 2021,2022, an increase of $13.0$7.0 million, or 58.2%19.8%. The increase is primarily due to increaseda significant increase in sales volumes of generic products, including $7.9 million of costs related to activity of Novitium during the three months ended June 30, 2022 with no comparable activity in the prior year period and an increase of $2.0 million related to increased sales ofrare disease pharmaceutical products subject to profit sharing arrangements.. During the three months ended June 30, 2022, and 2021, we recognized $1.0

43

million and $1.5 million, respectively, in cost of sales representing the excess of fair value over cost for inventory acquired in acquisitions and subsequently sold during the three months ended June 30, 2022 and 2021.2022. There are no comparable expenses in the three months ended June 30, 2023.

Cost of sales, exclusiveas a percentage of net revenues, decreased from 47.8% to 36.3% for the three months ended June 30, 2023, compared to the same period in 2022. The decrease was primarily due to a shift in product mix year over year as well as the non-recurrence of $1.0 million and $1.5 million net impact related to excess of fair value over the cost of inventory sold duringexpense recognized in the three months ended June 30, 2022, and 2021, respectively, as a percentagerelated to the excess of net revenues increased to 46.5% duringfair value over cost for inventory acquired in an asset acquisition.
During the three months ended June 30, 2022, from 42.8% during same period in 2021, primarily as a result2023, no single vendor represented more than 10% of increased generic volumes in a period of declining average selling prices across generic and brand products and increased sales of products with profit sharing arrangements. These increases were tempered by sales of the rare disease pharmaceutical products which have higher margins.

inventory purchases. During the three months ended June 30, 2022, we purchased approximatelyone vendor represented 18% of our inventory from one supplier. As of June 30, 2022, our amount payable to this supplier was $6.3 million. During the three months ended June 30, 2022 and 2021, no single vendor represented more than 10% of inventory purchases.

42


Other Operating Expenses

Three Months Ended June 30,
(in thousands)20232022Change% Change
Research and development$7,374 $4,165 $3,209 77.0 %
Selling, general, and administrative38,760 31,958 6,802 21.3 %
Depreciation and amortization14,690 13,764 926 6.7 %
Contingent consideration fair value adjustment1,035 (1,095)2,130 (194.5)% 
Restructuring activities2,570 (2,568)(99.9)%
Intangible asset impairment charge— 112 (112)NM(1)
Total other operating expenses$61,861 $51,474 $10,387 20.2 %
(1)

Three Months Ended June 30, 

(in thousands)

    

2022

    

2021

    

Change

    

% Change

    

Research and development

$

4,165

$

2,805

$

1,360

 

48.5

%  

Selling, general, and administrative

 

31,958

 

18,820

 

13,138

 

69.8

%  

Depreciation and amortization

 

13,764

 

11,324

 

2,440

 

21.5

%  

Contingent consideration fair value adjustment

(1,095)

(1,095)

NM

(1)

Legal settlement expense

8,400

(8,400)

(100.0)

%  

Purified Cortrophin Gel pre-launch charges

 

 

515

 

(515)

 

(100.0)

%  

Restructuring activities

2,570

2,570

NM

(1)

Intangible asset impairment charge

112

112

NM

(1)

Total other operating expenses

$

51,474

$

41,864

$

9,610

 

23.0

%  

(1)Not meaningful

Other operating expenses consist of research and development costs, selling, general, and administrative expenses, depreciation and amortization, contingent consideration fair value adjustment, legal settlement expense, Purified Cortrophin Gel pre-launch charges, restructuring activities, and intangible asset impairment charges.

Not meaningful

For the three months ended June 30, 2022,2023, other operating expenses increased to $51.5$61.9 million from $41.9$51.5 million for the same period in 2021,2022, an increase of $9.6$10.4 million, or 23.0%20.2%, primarily as a result of the following factors:

Research and development expenses increased from $2.8 million to $4.2 million, an increase of 48.5%, primarily due to expenses related to the Novitium activities during the three months ended June 30, 2022 and no comparable expenses in the three months ended June 30, 2021, and tempered by a $0.9 million decrease in expense associated with our Cortrophin development efforts.
Selling, general, and administrative expenses increased from $18.8 million to $32.0 million, an increase of $13.1 million, or 69.8%, primarily due to a $12.4 million increase in sales and marketing expenses related to our launch of Purified Cortrophin Gel, increased expenses primarily related to the addition of Novitium headcount and activities during the three months ended June 30, 2022, with no comparable expenses in the 2021 period, and tempered by a $1.6 million decrease in transaction expenses related to the Novitium acquisition.
Depreciation and amortization expense was $13.8 million for the three months ended June 30, 2022, compared to $11.3 million for the same period in 2021, an increase of $2.4 million. The increase is primarily due to the amortization of intangible assets acquired in the Novitium acquisition.

As described in Note 14, Fair Value Disclosures, in the unaudited interim condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, we recognized a contingent

44

Research and development expenses increased from $4.2 million to $7.4 million, an increase of $3.2 million or 77.0%, primarily due to a higher level of activity associated with generic projects coupled with an increase associated with projects related to Cortrophin Gel in the three months ended June 30, 2023.
Selling, general, and administrative expenses increased from $32.0 million to $38.8 million, an increase of $6.8 million, or 21.3%, primarily due to increased employment related costs and increased legal expenses.
consideration fair value adjustment of $1.1 million income in the three months ended June 30, 2022. The income is principally due to an increase in the discount rate and tempered by the passage of time. No contingent consideration fair value adjustment was recognized in the three months ended June 30, 2021.
As described in Note 13, Commitments and Contingencies, in the unaudited interim condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, we recognized a legal settlement expense of $8.4 million income related to the Arbor commercial matter in the three months ended June 30, 2021. No legal settlement expense was recognized in the three months ended June 30, 2022.
We recognized restructuring activities of $2.6 million of expense in the three months ended June 30, 2022, in relation to the anticipated closure of our Oakville, Ontario, Canada facility. Costs included $1.4 million in termination benefits, $0.9 million in fixed asset impairments and accelerated depreciation, and $0.3 of other costs. No restructuring activities were recognized in the three months ended June 30, 2021.
We recognized an impairment of $0.1 million in the three months ended June 30, 2022, in relation to an ANDA asset. No impairment charges were recognized in the three months ended June 30, 2021.
As described in Note 13, Fair Value Disclosures, in the unaudited interim condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, we recognized a contingent consideration fair value adjustment of $1.0 million and $(1.1) million adjustment in the three months ended June 30, 2023 and 2022, respectively. The expense is principally due to the passage of time (i.e., moving closer to the anticipated payment date of the consideration) and an increase to the probability of payment for the product development-based milestone payments.
We recognized restructuring activities of $2.6 million of expense in the three months ended June 30, 2022, in relation to the closure of our Oakville, Ontario, Canada facility. Costs included $1.4 million in termination benefits, $0.9 million in fixed asset impairments and accelerated depreciation, and $0.3 million of other costs. The restructuring activities recognized in the three months ended June 30, 2023 was immaterial.

We recognized an impairment of $0.1 million in the three months ended June 30, 2022, in relation to an ANDA asset. No impairment charges were recognized in the three months ended June 30, 2023.
Other Expense, net

Three Months Ended June 30,
(in thousands)20232022Change% Change
Interest expense, net$(7,100)$(6,669)$(431)6.5 %
Other (expense) income, net(53)764 (817)(106.9)%
Total other expense, net$(7,153)$(5,905)$(1,248)21.1 %

Three Months Ended June 30, 

(in thousands)

    

2022

    

2021

    

Change

    

% Change

  

Interest expense, net

$

(6,669)

$

(2,531)

$

(4,138)

 

163.5

%  

Other income/(expense), net

 

764

 

(67)

 

831

 

(1,240.3)

%  

Total other expense, net

$

(5,905)

$

(2,598)

$

(3,307)

 

127.3

%  

For the three months ended June 30, 2022,2023, we recognized total other expense, net of $5.9$7.2 million versus total other expense of $2.6$5.9 million for the same period in 2021,2022, an increase of $3.3$1.2 million. Interest expense, net for the three months ended June 30, 2023 and 2022 consisted primarily of interest expense on borrowings under our Term Facility. Interest expense, net for the three months ended June 30, 2021 consisted primarily of interest expense on borrowings under our Amended and Restated Credit Agreement, dated as of December 27, 2018 (the “Prior Credit Agreement”), among the Company, as borrower, and Citizens Bank with other lenders. The increase in interest expense is due to an increase in the debt outstanding during the three months ended June 30, 2022 coupled with an increased borrowing rate on the $300.0 million Term Facility as compared to the borrowing rate on the Prior Credit Agreement borrowings, and an increase in amortization of finance fees. Duringfees offset income from our interest rate swap and increased interest income earned on higher cash balances. For the three months ended June 30, 2023, there was $0.3 million of interest capitalized into construction in progress. For the three months ended June 30, 2022, there was $299.3 million of outstanding borrowings, compared to $184.6 million to $205.7 million during the comparable 2021 period. For the three months ended June 30, 2022 and 2021, there was less than $0.1 millionmillion of interest capitalized into construction in progress. Other income/(expense), net during the three months ended June 30, 2022 consists primarily of a $0.8 million gain on the sale of an ANDA.

Benefit for

43


Income Taxes

Three Months Ended June 30, 

 

(in thousands)

    

2022

    

2021

    

Change

    

% Change

 

Benefit for income taxes

$

3,895

$

4,045

$

(150)

 

(3.7)

%

Our provision for income taxesTax Benefit

Three Months Ended June 30, 
(in thousands)20232022Change% Change
Income tax benefit$996 $3,895 $(2,899)(74.4)%
Income tax benefit consists of current and deferred components, which include changes in our deferred tax assets, our deferred tax liabilities, and our valuation allowance.

For the three months ended June 30, 2023, we recognized an income tax benefit of $1.0 million. The Company's effective tax rate was (19.0)% for the three months ended June 30, 2023. The effective tax rate differed from the federal statutory rate of 21% primarily due to the recognition of the U.S. federal research and development credit, permanent differences, and discrete tax benefit primarily related to remeasurement of its gross deferred assets due to change in state deferred effective tax rate.
For the three months ended June 30, 2022, we recognized an income tax benefit of $3.9 million. The income tax benefit resulted from applying an estimated annual worldwide effective tax rate of 20.7% to pre-tax consolidated loss of $18.8 million reported during the period, as well as the net effects of certain discrete items occurring in 2022 which impact our

45

income tax provision in the period in which they occur.period. There were no material discrete items occurring during the three months ended June 30, 2022.

For the three months ended June 30, 2021, we recognized an income tax benefit of $4.0 million. The income tax benefit resulted from applying an estimated annual worldwide effective tax rate of 22.3% to pre-tax consolidated loss of $18.2 million reported during the period, reduced by the net effects of certain discrete items occurring in 2021

which impact our income tax provision in the period in which they occur. There were no material discrete items occurring during the three months ended June 30, 2021.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 20222023 AND 2021

2022

Net Revenues

Six Months Ended June 30, 

 

(in thousands)

    

2022

    

2021

    

Change

    

% Change

 

Generics, Established Brands, and Other Segment

Generic pharmaceutical products

$

98,970

$

66,812

$

32,158

 

48.1

%

Established brand pharmaceutical products

 

16,915

 

18,555

 

(1,640)

 

(8.8)

%

Contract manufacturing

 

7,293

 

4,895

 

2,398

 

49.0

%

Royalty and other

 

3,660

 

12,884

 

(9,224)

 

(71.6)

%

Generics, established brands, and other segment total net revenues

$

126,838

$

103,146

$

23,692

23.0

%

Rare Disease Segment

Rare disease pharmaceutical products

$

11,494

$

$

11,494

NM

(1)

Total net revenues

$

138,332

$

103,146

$

35,186

 

34.1

%

(1)Not meaningful

Six Months Ended June 30,
(in thousands)20232022Change% Change
Generics, Established Brands, and Other Segment
Generic pharmaceutical products$127,030 $98,970 $28,060 28.4 %
Established brand pharmaceutical products, royalties, and other pharmaceutical services$55,669 $27,868 27,801 99.8 %
Generics, established brands, and other segment total net revenues$182,699 $126,838 $55,861 44.0 %
Rare Disease Segment
Rare disease pharmaceutical products40,634 11,494 $29,140 253.5 %
Total net revenues$223,333 $138,332 $85,001 61.4 %
Net revenues for the six months ended June 30, 20222023 were $138.2$223.3 million compared to $103.1$138.3 million for the same period in 2021,2022, an increase of 34.0%61.4%, primarily as a result of the following factors:

Net revenues for generic pharmaceutical products were $99.0
Net revenues for generic pharmaceutical products were $127.0 million during the six months ended June 30, 2022, an increase of 48.1% compared to $66.8 million for the same period in 2021. From a product perspective, the increase was principally driven by revenues from products acquired in our acquisition of Novitium, including Prazosin, Prednisone, Famotidine, Oxybutynin Chloride, Dapsone, and various other products. The increase was also due to increased revenues of Nebivolol, which ANI launched in September 2021. Increases were tempered by a decrease in revenues of Penicillamine, Propranolol Extended Release, EEMT, and Erythromycin Ethylsuccinate (“EES”).The increase in net generic revenues was principally due to an increase in volumes and tempered by a decrease in average selling prices.

Generic prescription levels were suppressed when compared to pre-pandemic levels during the six months ended June 30, 2021,2023, an increase of 28.4% compared to $99.0 million for the same period in 2022, driven by increased volumes on the base business, increased volumes from the annualization of 2022 launches and primarily during2023 new prdouct launches. From a product perspective, the first quarter, which hadincrease was principally driven by revenues from year over year increases in Acebutolol, Digoxin, Famotidine, Fludrocortisone, Glipizide, Levocarnitine Tablets, Meloxicam, Miglustat, Misoprostol, Nebivolol, Prochlorperazine, Pyrazinamide, Tolterodine, Trimethorpim, and various other products tempered by a negative impact on our net salesdecrease in revenues of genericCholestyramine, Fenofibrate, Mesalamine, Oxybutynin Chloride, and Prazosin, among others.

Net revenues for established brand pharmaceutical products, during the period. Prescriptions have returned to essentially pre-pandemic levels in 2022.

Net revenues for established brand pharmaceutical products were $16.9 million during the six months ended June 30, 2022, a decrease of 8.8% compared to $18.6 million for the same period in 2021. From a product perspective, the net decrease was driven by a decrease in sales of Casodex and InnoPran XL. These decreases were tempered by an increase in sales of Atacand. The decrease in revenues for the six months ended June 30, 2022 was principally due to prior period adjustments or change in estimates to variable consideration, including returns and rebates.

Sales of our established brand productsroyalties, and other pharmaceutical services were negatively impacted by the COVID-19 pandemic $55.7 million during the six months ended June 30, 2021, and primarily2023, an increase of 99.8% compared to $27.9 million for the same period in 2022, driven by an increase in volume.

Net revenues of rare disease pharmaceutical products, which consist entirely of sales of Cortrophin Gel, were $40.6 million during the first quarter,six months ended June 30, 2023 an increase of $29.1 million from $11.5 million for the same period in 2022. This increase was driven by increased volume as mitigation measuresthe product was launched in late January 2022.
44


In addition to the above, within our Generic, established brand, and other related

segment in the current year period, we were successful in supplying incremental volume in markets that were experiencing supply chain disruptions for competitive products. There is no assurance as to how long into future periods these favorable market conditions will persist.

46

actions suppressed prescription levels during the period. Brand prescriptions have returned to essentially pre-pandemic levels in 2022.

Contract manufacturing revenues were $7.3 million during the six months ended June 30, 2022, an increase of 49.0% compared to $4.9 million for the same period in 2021, due to an increase in the volume of orders, primarily related to Novitium contract manufacturing revenues in 2022 with no comparable revenues in 2021.

Royalty and other revenues were $3.7 million during the six months ended June 30, 2022, a decrease of $9.2 million from $12.9 million for the same period in 2021, primarily due to the recognition of the final royalty of $11.2 million under the Kite Pharma, Inc. license agreement (Yescarta®) pursuant to the Tripartite Agreement in the six months ended June 30, 2021. Royalty revenue for the six months ended June 30, 2022 includes $2.1 million related to Novitium arrangements. There were no comparable revenues for this period in 2021.
Net revenues of rare disease pharmaceutical products, which consists entirely of sales of Purified Cortrophin Gel, were $11.5 million during the six months ended June 30, 2022, as the product was launched in late January 2022. There were no sales of rare disease pharmaceutical products during the comparable prior year period.

Cost of Sales (Excluding Depreciation and Amortization)

Six Months Ended June 30,
(in thousands)20232022Change% Change
Cost of sales (excluding depreciation and amortization)$79,992 $69,565 $10,427 15.0 %

Six Months Ended June 30, 

 

(in thousands)

    

2022

    

2021

    

Change

    

% Change

 

Cost of sales (excl. depreciation and amortization)

$

69,565

$

42,299

$

27,266

 

64.5

%

For the six months ended June 30, 2022,2023, cost of sales increased to $69.6$80.0 million from $42.3$69.6 million for the same period in 2021,2022, an increase of $27.3$10.4 million, or 64.5%15.0%. The increase is primarily due to increaseda significant increase in sales volumes of generic products, including $17.4 million of costs related to activity of Novitium duringand rare disease pharmaceutical products. During the six months ended June 30, 2022, with no comparable activity in the prior year period, andwe recognized $4.8 million in costscost of sales representing the excess of fair value over cost for inventory acquired in an asset acquisitionacquisitions and a business combination, of which $3.2 million relates to inventory acquired from Novitium and includedsubsequently sold during the six months ended June 30, 2022. There are no comparable expenses in the previously discussed $17.4six months ended June 30, 2023.


Cost of sales, as a percentage of net revenues, decreased from 50.3% to 35.8% for the six months ended June 30, 2023, compared to the same period in 2022. The decrease was primarily due to the non-recurrence of $4.8 million of cost of sales. Charges forexpense recognized in the six months ended June 30, 2022, related to the excess of fair value over cost for inventory acquired in an asset acquisition were $1.5 million fora business combination, as well as the comparable period in 2021. Sales of products subject to profit sharing arrangements also accounted for a $0.9 million increase in the current year period.

Cost of sales, exclusive of the $4.8 million net impact related to excess of fair value over the cost of inventory sold during the period, as a percentage of net revenues increased to 46.8% during the six months ended June 30, 2022, from 39.6% during same period in 2021, primarily as a result of increased volumes in a period of declining average selling prices across generic and brand products, $11.2 million in royalty revenue during the comparable 2021 period with no associated cost of goods sold, and higher costs related to sales of Established brand pharmaceutical products, subject to profit sharing arrangements.

royalties,

and other pharmaceutical services products and Cortrophin Gel coupled with increased generic volumes with a mix shift in higher margin products.
During the six months ended June 30, 2022, we purchased 17% of our inventory from one supplier. As of June 30, 2022, our amount payable to this supplier was $6.3 million. During the six months ended June 30, 2021,2023, no single vendor represented more than 10% of inventory purchases.

During the six months ended June 30, 2022, one vendor represented 17% of inventory purchases.

Other Operating Expenses

Six Months Ended June 30, 

(in thousands)

    

2022

    

2021

    

Change

    

% Change

    

Research and development

$

9,439

$

5,773

$

3,666

 

63.5

%  

Selling, general, and administrative

 

60,775

 

36,407

 

24,368

 

66.9

%  

Depreciation and amortization

 

28,321

 

22,222

 

6,099

 

27.4

%  

Contingent consideration fair value adjustment

(342)

(342)

NM

(1)

Legal settlement expense

8,400

(8,400)

(100.0)

%  

Purified Cortrophin Gel pre-launch charges

 

 

553

 

(553)

 

(100.0)

%  

Restructuring activities

2,570

2,570

NM

(1)

47

Six Months Ended June 30,
(in thousands)20232022Change% Change
Research and development$13,298 $9,439 $3,859 40.9 %
Selling, general, and administrative$75,228 $60,775 14,453 23.8 %
Depreciation and amortization$29,390 $28,321 1,069 3.8 %
Contingent consideration fair value adjustment$1,996 $(342)2,338 (683.6)% 
Restructuring activities$1,132 $2,570 (1,438)(56.0)% 
Intangible asset impairment charge$— $112 (112)NM(1)
Total other operating expenses$121,044 $100,875 $20,169 20.0 %
(1)Not meaningful

Intangible asset impairment charge

112

112

NM

(1)

Total other operating expenses

$

100,875

$

73,355

$

27,520

 

37.5

%  

(1)Not meaningful

For the six months ended June 30, 2022,2023, other operating expenses increased to $100.9$121.0 million from $73.4$100.9 million for the same period in 2021,2022, an increase of $27.5$20.2 million, or 37.5%20.0%, primarily as a result of the following factors:

Research and development expenses increased from $5.8 million to $9.4 million, an increase of 63.5%, primarily due to expenses related to the Novitium activities during the six months ended June 30, 2022 and no comparable expenses in the six months ended June 30, 2021, and tempered by a $1.6 million decrease in expense associated with our Cortrophin development efforts due to approval and launch of the product.
Selling, general, and administrative expenses increased from $36.4 million to $60.8 million, an increase of $24.4 million, or 66.9%, primarily due to $23.4 million increase in sales and marketing expenses related to our launch of Purified Cortrophin Gel, increases related to the addition of Novitium headcount and activities during the six months ended June 30, 2022, with no comparable expenses in the 2021 period, and tempered by a $3.4 million decrease in transaction expenses related to the Novitium acquisition.
Research and development expenses increased from $9.4 million to $13.3 million, an increase of $3.9 million or 40.9%, primarily due to a higher level of activity associated with generic projects coupled with an increase associated with projects related to Cortrophin Gel in the six months ended June 30, 2023.
Depreciation and amortization expense was $28.3 million for the six months ended June 30, 2022, compared to $22.2 million for the same period in 2021, an increase of $6.1 million. The increase is primarily due to the amortization of intangible assets acquired in the Novitium acquisition.

As described in Note 14, Fair Value Disclosures, in the unaudited interim condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, we recognized a contingent consideration fair value adjustment of $0.3 million income in the six months ended June 30, 2022. The income is principally due to an increase in the discount rate and tempered by the passage of time. No contingent consideration fair value adjustment was recognized in the six months ended June 30, 2021.
As described in Note 13, Commitments and Contingencies, in the unaudited interim condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, we recognized a legal settlement expense of $8.4 million income related to the Arbor commercial matter in the three months ended June 30, 2021. No legal settlement expense was recognized in the six months ended June 30, 2022.
We recognized restructuring activities of $2.6 million of expense in the six months ended June 30, 2022, in relation to the anticipated closure of our Oakville, Ontario, Canada facility. Costs included $1.4 million in termination benefits, $0.9 million in fixed asset impairments and accelerated depreciation, and $0.3 of other costs. No restructuring activities were recognized in the three months ended June 30, 2021.
We recognized an impairment of $0.1 million in the six months ended June 30, 2022, in relation to an ANDA asset. No impairment charges were recognized in the six months ended June 30, 2021.
Selling, general, and administrative expenses increased from $60.8 million to $75.2 million, an increase of $14.5 million, or 23.8%, primarily due to increased sales and marketing expenses related to Cortrophin Gel and increased employment related costs.
Depreciation and amortization expense was $29.4 million for the six months ended June 30, 2023, compared to $28.3 million for the same period in 2022, an increase of $1.1 million.

45


As described in Note 13, Fair Value Disclosures, in the unaudited interim condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, we recognized a contingent consideration fair value adjustment of $2.0 million and $(0.3) million adjustment in the six months ended June 30, 2023 and 2022, respectively. The expense is principally due to the passage of time (i.e., moving closer to the anticipated payment date of the consideration) and an increase to the probability of payment for the product development-based milestone payments.
We recognized restructuring activities of $1.1 million of expense in the six months ended June 30, 2023, in relation to the closure of our Oakville, Ontario, Canada facility. Costs included severance and other employee benefits costs of $0.2 million, $0.7 million of accelerated depreciation costs, and $0.2 million for other miscellaneous costs accrued in 2022. We recognized restructuring activities of $2.6 million of expense in the six months ended June 30, 2022, in relation to the closure of our Oakville, Ontario, Canada facility. Costs included $1.4 million in termination benefits, $0.9 million in fixed asset impairments and accelerated depreciation, and $0.3 million of other costs.
We recognized an impairment of $0.1 million in the three months ended June 30, 2022, in relation to an ANDA asset. No impairment charges were recognized in the six months ended June 30, 2023.
Other Expense, net

Six Months Ended June 30,
(in thousands)20232022Change% Change
Interest expense, net$(14,796)$(13,282)$(1,514)11.4 %
Other (expense) income, net(87)675 (762)(112.9)%
Total other expense, net$(14,883)$(12,607)$(2,276)18.1 %

Six Months Ended June 30, 

(in thousands)

    

2022

    

2021

    

Change

    

% Change

    

Interest expense, net

$

(13,282)

$

(4,985)

$

(8,297)

 

166.4

%  

Other income/(expense), net

 

675

 

(582)

 

1,257

 

(216.0)

%  

Total other expense, net

$

(12,607)

$

(5,567)

$

(7,040)

 

126.5

%  

For the six months ended June 30, 2022,2023, we recognized total other expense, net of $12.6$14.9 million versus total other expense of $5.6$12.6 million for the same period in 2021,2022, an increase of $7.0$2.3 million. Interest expense, net for the six months ended June 30, 2023 and 2022 consisted primarily of interest expense on borrowings under theour Term Facility. Interest expense, net for the six months ended June 30, 2021 consisted primarily of interest expense on borrowings under our existing

48

Amended and Restated Credit Agreement, dated as of December 27, 2018 (the “Prior Credit Agreement”), among the Company, as borrower, and Citizens Bank with other lenders. The increase in interest expense is due to an increase in the debt outstanding during the six months ended June 30, 2022 coupled with an increased borrowing rate on the $300.0 million Term Facility as compared to the borrowing rate on the Prior Credit Agreement borrowings and an increase in amortization of finance fees. Duringfees offset by income from our interest rate swap and increased interest income earned on higher cash balances. For the six months ended June 30, 2022,2023, there was $299.3 million to $300.0$0.3 million of outstanding borrowings, compared to $186.9 million to $205.7 million during the comparable 2021 period.interest capitalized into construction in progress. For the six months ended June 30, 2022, and 2021, there was less than $0.1 million of interest capitalized into construction in progress. The $1.3 million change in other income/(expense), net is primarily related to a $0.8 million gain on

Income Tax Benefit
Six Months Ended June 30,
(in thousands)20232022Change% Change
Income tax benefit270 $9,662 $(9,392)(97.2)%
For the sale of an ANDA in the six months ended June 30, 2022 and2023, we recognized an income tax benefit of $0.3 million. The Company's effective tax rate was (3.7)% for the non-recurrence of $0.4 million of expense associated with the final royalty receipt on the Kite license agreement during the six months ended June 30, 2021.2023.

Benefit for Income Taxes

The effective tax rate differed from the federal statutory rate of 21% primarily due to the recognition of the U.S. federal research and development credit, permanent differences, and discrete tax benefit primarily related to remeasurement of gross deferred assets due to change in state deferred effective tax rate.

Six Months Ended June 30, 

(in thousands)

    

2022

    

2021

    

Change

    

% Change

 

Benefit for income taxes

$

9,662

$

4,055

$

5,607

 

138.3

%

For the six months ended June 30, 2022, we recognized an income tax benefit of $9.7 million. The income tax benefit resulted from applying an estimated annual worldwide effective tax rate of 21.6% to pre-tax consolidated loss of $44.7 million reported during the period, as well as the net effects of certain discrete items occurring in 2022 which impact our income tax provision in the period in which they occur.period. There were no material discrete items occurring during the six months ended June 30, 2022.

46

For the six months ended June 30, 2021, we recognized an income tax benefit of $4.1 million. The income tax benefit resulted from applying an estimated annual worldwide effective tax rate of 22.4% to pre-tax consolidated loss of $18.1 million reported during the period, reduced by the net effects of certain discrete items occurring in 2021 which impact our income tax provision in the period in which they occur. There were no material discrete items occurring during the six months ended June 30, 2021.

LIQUIDITY AND CAPITAL RESOURCES

Debt Financing

On November 19, 2021, the Company, as borrower, entered into a credit agreement (the “Credit Agreement”) with Truist Bank and other lenders, which provides for credit facilities consisting of (i) a senior secured term loan facility in an aggregate principal amount of $300.0 million (the “Term Facility”) and (ii) a senior secured revolving credit facility in an aggregate commitment amount of $40.0 million, which may be used for revolving credit loans, swingline loans and letters of credit (the “Revolving Facility,” and together with the Term Facility, the “Credit Facility”). The Credit Facility is secured by substantially all our assets and the assets of our domestic subsidiaries.

The Term Facility proceeds were used to finance the cash portion of the consideration underfor the Merger Agreement,Novitium acquisition, repay borrowings under our Prior Credit Agreement, and pay fees, costs and expenses incurred in connection with the acquisition of Novitium. Proceeds from the Revolving Facility are expected to be used, subject to certain limitations, for working capital and other general corporate purposes.

The Term Facility matures in November 2027 and the Revolving Facility in November 2026. Each permits both base rate borrowings (“ABR Loans”) and Eurodollar rate borrowings (“Eurodollar Loans”), plus a spread of (a) 5.00% above the base rate in the case of ABR Loans under the Term Facility and 6.00% above the LIBOR Rate (as defined in the Credit Agreement, which includes a floor of 0.75%) in the case of loans under the Term Facility and (b) 3.75% above the base rate in the case of ABR Loans under the Revolving Facility and 4.75% above the LIBOR Rate (as defined in the Credit Agreement) in the case of loans under the Revolving Facility. The Credit Facility has a subjective acceleration clause in case of a material adverse effect. The Term Facility includes a repayment schedule, pursuant to which $750 thousand of the loan will be paid in quarterly installments during the 12 months ended December 31, 2022.ending June 30, 2023. As of June 30, 2022,

49

$3.0, $3.0 million of principal of the loan was recorded as current borrowings in the consolidated balance sheet. As of June 30, 2022,2023, we had not drawn on the Revolving Facility and $40.0 million remained available for borrowing.

borrowing subject to certain conditions.

In July 2023, the Company’s debt instruments that referenced LIBOR were amended to replace the benchmark rate with the Secured Overnight Financing Rate (

SOFR) in anticipation of the termination of published LIBOR rates.

Equity Financing

In May 2023, through a public offering, we completed the issuance and sale of 2,183,545 shares of ANI common stock, resulting in net proceeds after issuance costs of $80.6 million. The proceeds are intended to be used to in-license, acquire or invest in additional businesses, technologies, products or assets, to fund our commercialization efforts, including, but not limited to, sales and marketing and consulting expenses related thereto, and for general corporate purposes.
Concurrently with the execution of the Merger Agreement,merger agreement related to the Novitium acquisition, on March 8, 2021, we entered into that certain Equity Commitment and Investment Agreement with Ampersand 2020 Limited Partnership (the “PIPE Investor”) pursuant to which, on November 19, 2021, we issued and sold to the PIPE Investor, and the PIPE Investor purchased, 25,000 shares of our Series A Convertible Preferred Stock , for a purchase price of $1,000 per share and an aggregate purchase price of $25$25.0 million, in a private placement issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Regulation D promulgated thereunder.

In November 2021, through a public offering, we completed the issuance and sale of 1,500,000 shares of ANI common stock, resulting in net proceeds after issuance costs of $69.7 million. The proceeds are beingwere used to fund our Purifiedinitial Cortrophin Gel commercialization efforts, including sales and marketing and consulting expenses related thereto, and for general corporate purposes.

We believe that our financial resources, consisting of current working capital, anticipated future operating revenue and corresponding collections from customers, and our Credit Facility, under which $40.0 million remains available for borrowing as of June 30, 2022,2024, will be sufficient to enable us to meet our working capital requirements and debt obligations for at least the next 12 months.

47


Cash Flows

The following table summarizes the net cash and cash equivalents (used in) provided by/(used in) by operating activities, investing activities, and financing activities for the periods indicated:

Six Months Ended June 30, 

(in thousands)

    

2022

    

2021

Operating Activities

$

(30,426)

$

20,909

Investing Activities

$

(2,782)

$

(22,687)

Financing Activities

$

(3,707)

$

18,173

Six Months Ended June 30,
(in thousands)20232022
Operating Activities$42,050 $(30,426)
Investing Activities$(9,179)$(2,782)
Financing Activities$75,602 $(3,707)
Net Cash (Used In) / Provided by (Used in) Operations

Net cash used inprovided by operating activities was $30.4$42.1 million for the six months ended June 30, 2022,2023, compared to $20.9$30.4 million provided byused in operating activities during the same period in 2021,2022, a decreasechange of $51.3$72.5 million. The decreaseincrease was driven by our net lossincome in the current year period due to increased sales and net changes in working capital including increases to accounts receivablegross profit and inventorythe non-recurrence of $21.9 million and $10.9 million, respectively since December 31, 2021, due in part to a numbersignificant utilization of new product launchescash during the six months ended June 30, 2022.initial launch period of Cortrophin Gel (launched January 2022).

Net Cash Used in Investing Activities
Net cash used in investing activities for the

six months ended June 30, 2023 was $9.2 million, principally due to $4.9 million of capital expenditures and due to the acquisition of ANDAs from the estates of Akorn Holding Company for $4.3 million. Net cash used in investing activities for the six months ended June 30, 2022 was $2.8 million, principally due to the $3.3 million of capital expenditures partially offset by $0.8 million of proceeds from the sale of long-lived assets during the period.

Net Cash Provided by (Used in) Financing Activities
Net cash used in investingprovided by financing activities for the six months ended June 30, 20212023 was $22.7$75.6 million, principally due to

50

the acquisition of three NDAs and an ANDA from Sandoz, Inc. for $20.7$80.6 million in considerationproceeds from the May 2023 public offering and $1.6$1.4 million from proceeds from stock option exercises and ESPP purchases. This is offset by cash used in financing activities related to $1.5 million maturity payments on the Term Facility, $4.1 million of capital expenditures during the period.

Net Cash (Used in) / Provided by Financing Activities

treasury stock purchased in relation to restricted stock vests, and $0.8 million convertible preferred stock dividends paid. Net cash used in financing activities for the six months ended June 30, 2022 was $3.7 million, principallyprincipally due to the $1.5 million maturity payments on the Term Facility, $1.6 million of treasury stock purchased in relation to restricted stock vests, and $0.8 million convertible preferred stock dividends paid. Net cash provided by financing activities was $18.2 million for the six months ended June 30, 2021, principally due to borrowings of $24.0 million on the Revolving Facility, $5.2 million of maturity payments on the term facilities related to our Prior Credit Agreement, and $0.8 million of treasury stock purchased in relation to restricted stock vests.

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our unaudited interim condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. In our consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, revenue recognition, allowance for credit losses, variable consideration determined based on accruals for chargebacks, administrative fees and rebates, government rebates, returns and other allowances, allowance for inventory obsolescence, valuation of financial instruments and intangible assets, accruals for contingent liabilities, including contingent consideration in acquisitions, fair value of long-lived assets, income tax provision or benefit, deferred taxes and valuation allowance, determination of right-of-use assets and lease liabilities, purchase price allocations, and the depreciable lives of long-lived assets.

A summary of our significant accounting policies is included in Part II, Item 8. Consolidated Financial Statements, Note 1, Description of Business and Summary of Significant Accounting Policies, in our Annual Report on Form 10-K for the year ended December 31, 2021.2022. Certain of our accounting policies are considered critical, as these policies require significant, difficult or complex judgments by management, often requiring the use of estimates about the effects of matters that are inherently uncertain. Such policies are summarized in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021.

2022.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

A discussion of the recently issued accounting pronouncements is described in Note 1, Business, Presentation, and Recent Accounting Pronouncements, in the unaudited interim condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and is incorporated herein by reference.

48


CONTRACTUAL OBLIGATIONS

As of June 30, 2022,2023, our contractual obligations have not changed materially from the amounts reported in our most recent 2022 Annual Report on Form 10-K.

Report.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

Market risks include interest rate risk, equity risk, foreign currency exchange rate risk, commodity price risk, and other relevant market rate or price risks. Of these risks, interest rate risk, equity risk, and foreign currency exchange rate risk could have a significant impact on our results of operations.

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On November 19, 2021, we entered into the Credit Agreement, which is secured by substantially all of the personal property and certain material real property owned by ANI and our wholly-owned domestic subsidiaries, and obligations under the Credit Agreement are guaranteed by certain of our wholly-owned domestic subsidiaries.

The Term Facility proceeds were used to finance a portion of the consideration underfor the Merger Agreement,Novitium acquisition, repay our existing credit facility, and pay fees, costs and expenses incurred in connection with the acquisition. Proceeds from the Revolving Facility are expected to be used, subject to certain limitations, for working capital and other general corporate purposes.

The Term Facility matures on the six-year anniversary of November 19, 2021 (the “Closing Date”) and the Revolving Facility matures on the five-year anniversary of the Closing Date. The Revolving Facility and the Term Facility each permit both base rate borrowings (“ABR Loans”) and Eurodollar rate borrowings (“Eurodollar Loans”), plus a spread of (a) 5.00% above the base rate in the case of ABR Loans under the Term Facility and 6.00% above the LIBOR Rate (as defined in the Credit Facility) in the case of Eurodollar Loans under the Term Facility and (b) 3.75% above the base rate in the case of ABR Loans under the Revolving Facility and 4.75% above the LIBOR Rate (as defined in the Credit Facility) in the case of Eurodollar Loans under the Revolving Facility.

The Credit Agreement contains usual and customary representations and warranties of the parties for credit facilities of this type, subject to customary exceptions and materiality standards. In addition, we are required to maintain, a total net leverage ratio not to exceed 4.75:1.00 and, solely with respect to the Revolving Facility, (a) during the period beginning on October 1, 2022 and ending on September 30, 2023, a total net leverage ratio not to exceed 4.50:1.00 and (b) for all periods thereafter, a total net leverage ratio not to exceed 4.25:1.00.

The Credit Agreement also contains certain customary covenants and events of default, as well as, in the event of an occurrence of an event of default under the Credit Agreement, customary remedies for the lenders, including the acceleration of any amounts outstanding under the Credit Agreement.

In April 2020, we entered into an interest rate swap with Citizens Bank, N.A. to manage our exposure to changes in LIBOR-based interest rates underlying total borrowings under term facilities related to our Prior Credit Agreement. The interest rate swap matures in December 2026. Concurrent with the termination of the Prior Credit Agreement and entry into the Credit Facility with Truist Bank, the interest rate swap with a notional value of $158.6$168.6 million at origin on November 21, 2021 was novated and is now with Truist Bank and is used to manage changes in LIBOR-based interest rates underlying a portion of the borrowing under the Term Facility. We are exposed to interest rate risk on the unhedged portion of our Term Facility and if interest rates increased or decreased by 1%, interest expense would have increased or decreased by approximately $1.4 million. If our Revolving Facility were fully drawn and interest rates increased or decreased by 1%, interest expense would have increased or decreased by approximately $0.4 million. The interest rate swap provides an effective fixed interest rate of 2.26% and has been designated as an effective cash flow hedge and therefore qualifies for hedge accounting. As a result of the interest rate swap, our exposure to interest rate volatility is minimized.

We are exposed to risks associated with changes in interest rates. The returns from certain of our cash and cash equivalents will vary as short-term interest rates change. A 100 basis-point adverse movement (decrease) in short-term interest rates would decrease the interest income earned on our cash balance in the quarter ended June 30, 20222023 by approximately $2,000.

$0.1 million.

We are exposed to risks associated with foreign currency exchange rate risks as we remeasure certain Canadian dollar-denominated and Indian rupee-denominated transactions from ANI Pharmaceuticals Canada Inc. and our Indian subsidiary from the Canadian dollar to the U.S. dollar and the Indian-rupee to the U.S. dollar. Changes in exchange rates can positively or negatively impact our revenue, income, assets, liabilities, and equity. Currency exchange rates did not have a material impact on our revenue, income, assets, liabilities, or equity during the quarter ended June 30, 2022.

2023.

52

49

Item 4.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management has carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of June 30, 2022. Based upon that evaluation,2023. Due to the material weaknesses in internal control over financial reporting, our principal executive officer and principal financial officer concluded that, as ofdue to the end ofon-going remediation associated with the period covered by this report,material weakness identified in our 2022 Annual Report on Form 10-K (“2022 Form 10-K"), our disclosure controls and procedures were effective. In designingineffective as of June 30, 2023 to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act of 1934 is recorded, processed, summarized and evaluatingreported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.
For a more comprehensive discussion of the material weaknesses in internal control over financial reporting previously identified by management as of December 31, 2022 and the remedial measures undertaken to address these material weaknesses, investors are encouraged to review Item 9A, Disclosure Controls and Procedures, of our disclosure2022 Form 10-K.
Since March 8, 2023, the date of our 2022 Form 10-K, management has made progress with remediation efforts, including the following:
Hired a qualified Vice President and Corporate Controller with significant accounting and control expertise,
Added accounting resources at our Novitium location and in other areas of the overall ANI finance and accounting organization.
Implemented our ERP system and consolidated our accounts payable process at Novitium into ANI company controls and procedures we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assuranceas of achieving the desired control objectives.

July 1, 2023.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, other than the ongoing remediation effort discussed above, during the quarter ended June 30, 20222023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except as noted below.

reporting.

On November 19, 2021, we acquired all the issued and outstanding equity interests of Novitium Pharma LLC (“Novitium”). In conjunction with the transaction, we are currently in the process of integrating Novitium’s policies, processes, people, technology, and operations into the consolidated company, and integrating Novitium’s operations into our system of internal control over financial reporting, resulting in certain newly implemented or adapted controls.

Part II — OTHER INFORMATION

Item 1.    Legal Proceedings

Please refer to Note 13, 12, Commitments and Contingencies, in the unaudited interim condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated into this item by reference.

Item 1A.    Risk Factors

In addition to the other information set forth in this report, please carefully consider the factors described under the heading “Risk Factors” in our most recent Annual Report on Form 10-K for the fiscal year ended December 31, 20212022 in Part I, Item 1A. Risk Factors.1A and in our Form 8-K filed on May 11, 2023. The risks described are not the only risks facing us. Additional risks and uncertainties not currently known to us, or that our management currently deems to be immaterial, also may adversely affect our business, financial condition, and/or operating results. There have been no material changes
The following risk factor is provided to thoseupdate and supplement the risk factors since their disclosureof the Company previously disclosed under the heading “Risk Factors” in our most recentthe Company’s Annual Report on Form 10-K.

10-K for the year ended December 31, 2022 and the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.

53

50



We are subject to United States federal and state laws related to healthcare fraud and abuse and health information privacy and security, and the failure to comply with such laws may adversely affect our business.

Many of our products are eligible for reimbursement under federal and state health care programs such as Medicaid, Medicare, TRICARE, and/or state pharmaceutical assistance programs, and as a result, certain U.S. federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are, and will be, applicable to our business. We could be subject to healthcare fraud and abuse and patient privacy regulation by both the federal government and the states in which we conduct our business.

The domestic and foreign laws that may affect our ability to operate include, but are not limited to: (i) the U.S. Anti-Kickback Statute, which applies to our marketing and research practices, educational programs, pricing policies and relationships with healthcare providers or other entities, by prohibiting, among other things, soliciting, receiving, offering or paying remuneration, directly or indirectly, as a means of inducing, or in exchange for, either the referral of an individual or the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs; (ii) U.S. federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment to Medicare, Medicaid or other federal healthcare program payers that are false or fraudulent; (iii) new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; (iv) the U.S. Physician Payments Sunshine Act, which among other things, requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program to report annually information related to certain "payments or other transfers of value" made to physicians, physician assistants, advanced practice nurses and teaching hospitals, and ownership and investment interests held by physicians and their immediate family members, and similar state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; (v) the government pricing rules applicable to the Medicare and Medicaid programs, the 340B Drug Pricing Program, the U.S. Department of Veterans Affairs program, the TRICARE program, and state price transparency reporting laws; and (vi) state and foreign law equivalents of each of the above U.S. laws, such as anti-kickback and false claims laws which may apply to items or services. Defense of litigation claims and government investigations can be costly, time-consuming, and distract management, and it is possible that we could incur judgments, settlements, deferred or non-prosecution agreements, or corporate integrity agreements that would require us to change the way we operate our business. We are committed to conducting the sales and marketing of our products in compliance with the healthcare fraud and abuse laws, but certain applicable laws may impose liability even in the absence of specific intent to defraud. Furthermore, should there be ambiguity, a governmental authority may take a position contrary to a position we have taken, or should an employee violate these laws without our knowledge, a governmental authority may impose civil and/or criminal sanctions.

Any adverse outcome in these types of actions, or the imposition of penalties or sanctions for failing to comply with fraud and abuse laws, could adversely affect us and may have a material adverse effect on our business, results of operations, financial condition and cash flows. Some of the statutes and regulations that govern our activities, such as federal and state anti-kickback and false claims laws, are broad in scope, and while exemptions and safe harbors protecting certain common activities exist, they are often narrowly drawn and construed by the courts. While we manage our business activities to comply with these statutory provisions, due to their breadth, complexity and, in certain cases, uncertainty of application, it is possible that our activities could be subject to challenge by various government agencies. In particular, the FDA, the DOJ, the Office of Inspector General at the U.S. Department of Health and Human Services, and other agencies have increased their enforcement activities with respect to the manufacturing, sales, marketing, research and similar activities of pharmaceutical companies in recent years, and many pharmaceutical companies have been subject to government investigations related to these practices. A determination that we are in violation of these and/or other government regulations and legal requirements may result in civil damages and penalties, criminal fines and prosecution, administrative remedies, the recall of products, the total or partial suspension of manufacturing and/or distribution activities, seizure of products, injunctions, whistleblower lawsuits, failure to obtain approval of pending product applications, withdrawal of existing product approvals, exclusion from participation in government healthcare programs and other sanctions.

Any of these types of investigations or enforcement actions could affect our ability to commercially distribute our products and could materially and adversely affect our business, financial condition, results of operations and cash flows.”
51


We are subject to certain privacy laws, information security laws, regulations, policies and contractual obligations related to data privacy and security and changes in such laws, regulations, policies, contractual obligations and failure to comply with such requirements, as well as any breach of unsecured identifiable personal information protected by law, could subject us to significant costs, fines, penalties (civil and criminal), and civil litigation which may have a material adverse effect on our business, financial condition or results of operations.

As regulatory focus on privacy issues continues to increase, and laws and regulations concerning the protection of personal information expand and become more complex, these potential risks to our business could intensify. In addition, the interpretation and application of consumer, health-related, and data protection laws are often uncertain, contradictory, and in flux, which complicates compliance efforts.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

Period
Total Number
of Shares
Purchased(1)
Average Price
Paid per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Maximum Number (or
approximate dollar
value) of Shares
that may yet be
Purchased Under the
Plans or Programs
April 1 - April 30, 202313,221$38.51 $— 
May 1 - May 31, 20231,059$41.87 $— 
June 1 - June 30, 2023553$50.71 $— 
Total14,833$39.21 
(1)

Maximum Number (or

Total Number of

approximate dollar

Shares Purchased as

value) of Shares

Total Number

Part of Publicly

that may yet be

of Shares

Average Price

Announced Plans or

Purchased Under the

Period

    

Purchased(1)

    

Paid per Share

    

Programs

    

Plans or Programs

April 1 - April 30, 2022

15,057

$

29.89

$

May 1 - May 31, 2022

780

$

25.28

$

June 1 - June 30, 2022

567

$

23.77

$

Total

16,404

$

29.46

  

(1)Shares purchased during the period were transferred to the Company from employees in satisfaction of minimum tax withholding obligations associated with the vesting of restricted stock awards during the period.

Item 3.    Defaults Upon Senior Securities

None.

Item 4.    Mine Safety Disclosures

Not applicable.

Item 5.    Other Information

None.

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(c) Our directors and executive officers may from time to time enter into plans or other arrangements for the purchase or sale of our common stock that are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or may represent a non-Rule 10b5-1 trading arrangement under the Exchange Act. During the quarter ended June 30, 2023, no such plans or other arrangements were adopted or terminated.

Item 6.    Exhibits

The exhibits listed in the Index to Exhibits, which is incorporated herein by reference, are filed or furnished as part of this Quarterly Report on Form 10-Q.

52


INDEX TO EXHIBITS

Exhibit No.

Description

10.1

Employment Agreement between Meredith Cook and the Company, dated June 21, 2022.

10.2

Amendment No. 2023-1 To ANI Pharmaceuticals, Inc. ExecutiveAmended and Restated 2022 Stock Incentive Bonus Plan (incorporated by reference to Exhibit 10.1 to ANI’s Current Reportof the Company’s Registration Statement on Form 8-K asS-8 filed with the Securities and Exchange Commission on February 28, 2022 (File No. 001-31812))June 23, 2023).

31.1

31.2

32.1

101

The following financial information from this quarterly report on Form 10-Q for the fiscal quarter ended June 30, 20222023 formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Comprehensive Income; (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity; (v) Condensed Consolidated Statements of Cash Flows; and (vi) Notes to Condensed Consolidated Financial Statements.

104

Cover Page Interactive Data File (embedded within the Inline XBRL document).

55

53

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ANI Pharmaceuticals, Inc. (Registrant)

Date:

August 8, 2022

By:

/s/ Nikhil Lalwani

Nikhil Lalwani

ANI Pharmaceuticals, Inc. (Registrant)

President and

Date:August 9, 2023By:/s/ Nikhil Lalwani

Chief Executive Officer

Nikhil Lalwani

President and
Chief Executive Officer
(principal executive officer)

Date:

August 8, 2022

9, 2023

By:

/s/ Stephen P. Carey

Stephen P. Carey

Senior Vice President, Finance and

Chief Financial Officer

(principal financial and accounting officer)

56

54